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Free AICPA CPA-Business Exam Questions (page: 3)

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PDF with 530 Questions

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?

  1. Dr. Addison joining the City Hospital Medical Partnership.
  2. Dr. Carter's interest in the partnership being attached by the court.
  3. Dr. Addison being adjudicated bankrupt.
  4. Dr. Bradley being sued for an accounting by the other partners of ABC.

Answer(s): 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.



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

  1. Option A
  2. Option B
  3. Option C
  4. Option D

Answer(s): 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.



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?

  1. Park may dissociate from the partnership at any time.
  2. Unless Graham consents to the dissociation, Park must apply to a court and obtain a decree ordering the dissociation.
  3. Park may not dissociate from the partnership unless Graham consents.
  4. Park may dissociate from the partnership only after notice of the proposed dissolution is given to all partnership creditors.

Answer(s): 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.



The partners of College Assoc., a general partnership, decided to dissolve the partnership and agreed that none of the partners would continue to use the partnership name. Under the Revised Uniform Partnership Act, which of the following events will occur on dissolution of the partnership?

  1. Option A
  2. Option B
  3. Option C
  4. Option D

Answer(s): C

Explanation:

Choice "c" is correct. "No - Yes."
Rule: Upon the dissolution of the partnership, each of the partners continues to have liability for partnership debts. Upon dissolution of the partnership each of the partners will continue to have apparent authority. The apparent authority of a partner can only be negated upon proper notice to third parties.
Choices "a", "b", and "d" are incorrect, per the above rule.



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.

  1. I only.
  2. II only.
  3. Both I and II.
  4. 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.



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:

  1. Lose, because Locke's action was not authorized by the partnership agreement.
  2. Lose, because Locke was not an agent of the partnership.
  3. Win, because Locke had express authority to bind the partnership.
  4. 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.



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

  1. Purchase inventory.
  2. Hire employees.
  3. Sell goodwill.
  4. 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.



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:

  1. III, I, and II.
  2. I, II, and III.
  3. II, III, and I.
  4. 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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