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AICPA CPA-Business Exam Questions
CPA Business Environment and Concepts (Page 11 )

Updated On: 28-Feb-2026
Page 11 of 107
PDF with 530 Questions

Doug was the sole general partner in Heavy Foot, Limited Partnership.
While driving to work one morning, Doug died in a car accident. The limited partnership:

  1. Continues to exist as it was before Doug's death.
  2. Dissolves by operation of law as a result of Doug's death.
  3. Dissolves only by attaining a judicial decree.
  4. Converts to a general partnership and all former limited partners become general partners.

Answer(s): B

Explanation:

Choice "b" is correct.
Rule: The death of a general partner will by operation of law, dissolve the limited partnership. Because the dissolution is by operation of law, there is no requirement to attain a judicial decree. Remaining limited partners do not automatically become general partners as a result of the death of the general partner.
Choices "a", "c", and "d" are incorrect, per the above rule.



Which of the following statements is correct with respect to the differences and similarities between a corporation and a limited partnership?

  1. Stockholders may be entitled to vote on corporate matters but limited partners are prohibited from voting on any partnership matters.
  2. Stock of a corporation may be subject to the registration requirements of the federal securities laws but limited partnership interests are automatically exempt from those requirements.
  3. Directors owe fiduciary duties to the corporation and limited partners owe such duties to the partnership.
  4. A corporation and a limited partnership may be created only under a state statute and each must file a copy of its organizational document with the proper governmental body.

Answer(s): D

Explanation:

Choice "d" is correct. Both a limited partnership and a corporation:
1. Can only be created by statute, and
2. Each must file a copy of its certificate with the proper state agency. Choice "a" is incorrect. There are instances in which limited partners do vote on certain partnership matters (e.g., approve new general or limited partners). Choice "b" is incorrect. Limited partnership interests are not automatically exempt from the federal securities laws.
Choice "c" is incorrect. Limited partners do not owe a fiduciary duty to the limited partnership.



Aarons Group, Limited Partnership, was formed by three brothers, Aaron, Barry, and Sam. Aaron is the general partner and devotes more than 60 hours per week to the business. Barry and Sam are limited partners who work for different companies having no relationship to the limited partnership. The partners' capital contributions are as follows: Aaron invested 20%. Barry and Sam invested 40% each.
During the formation of the limited partnership, the brothers signed an agreement that addresses how the brothers will split profits and losses. At year-end, the limited partnership enjoyed large profits due to high demand for the business' product line.
The profits will be divided:

  1. In proportion to each partner's capital contribution.
  2. According to the agreement.
  3. Equally.
  4. By determining by the amount of time and labor each partner devoted to the operation of the partnership.

Answer(s): B

Explanation:

Choice "b" is correct.
Rule: Partners in a limited partnership can agree as to how they will split profits and losses, with losses shared up to the amount of the limited partners' capital. Profits and losses are shared on the basis of percentages of capital contributions only in the absence of an agreement otherwise. Choices "a", "c", and "d" are incorrect, per the above rule.



Lisa is a limited partner in a limited partnership. Jen, one of the other limited partners, is seeking to sell her interest in the partnership to Karen and allow Karen to become a new limited partner.
Which of the following statements is true?

  1. Lisa may engage in the management of the limited partnership without losing her limited liability.
  2. Jen may transfer her interest and make Karen a new limited partner without the approval of the other partners.
  3. Jen may withdraw from the limited partnership without giving notice to the partnership.
  4. Lisa has a right to vote on the transferring of interest to and admission of Karen as a limited partner.

Answer(s): D

Explanation:

Choice "d" is correct. Limited partners have the right to vote on the transfer of interest and admission of a new partner. Admission of a new partner requires unanimous consent. Choice "a" is incorrect. A limited partner who acts as a general partner loses her limited liability status to those she acted as a general partner towards.
Choice "b" is incorrect. Partners can freely transfer their interests in profits and losses to third parties, but the third party cannot become a limited partner without the unanimous consent of the other partners.
Choice "c" is incorrect. Limited partners must give 6 months notice of withdrawal in absence of an agreement to the contrary.



Which of the following statements is correct with respect to a limited partnership?

  1. A limited partner may not be an unsecured creditor of the limited partnership.
  2. A general partner may not also be a limited partner at the same time.
  3. A general partner may be a secured creditor of the limited partnership.
  4. A limited partnership can be formed with limited liability for all partners.

Answer(s): C

Explanation:

Choice "c" is correct. In a limited partnership, a general partner may be a secured creditor of the limited partnership.
Choice "a" is incorrect. In a limited partnership, a limited partner may be an unsecured creditor of the limited partnership.
Choice "b" is incorrect. In a limited partnership, a general partner may also be a limited partner at the same time.
Choice "d" is incorrect. In a limited partnership, only the limited partners will have limited liability. A limited partnership must have at least one general partner and general partners have unlimited liability.
(The word "all" makes this option wrong.)



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