1. Nicholas and Holly are partners in a toymaking shop. If Rudolph obtains a judgment against Nicholas for injuring
Rudolph while Nicholas was on partnership business, Rudolph must try to collect from the partnership before going after
Nicholas’ personal assets.
a.
True
b.
False
2. Common law plays an important role in regulating partnerships.
a.
True
b.
False
True
Easy
3. The rules set out in the UPA defining the liability of partners to outsiders can be modified by the partnership agreement.
a.
True
b.
False
False
Moderate
4. Doyle contributed $10,000 when he became a general partner in the existing partnership of R & Z Heating. If Albert
wins a judgment for $25,000 against R & Z on a claim that was incurred before Doyle became a partner, Doyle shares
joint and several liability with his new partners for the whole obligation.
a.
True
b.
False
False
Moderate
5. Alicia and Ted have a written agreement wherein they will share the losses of their joint business. This agreement is
strong evidence they are partners.
a.
True
b.
False
True
Moderate
6. Brock and Heidi agree to jointly run a fundraiser for the nonprofit children’s hospital. Even if they don’t have a formal,
True
Moderate
written agreement, they have formed a partnership.
a.
True
b.
False
7. Kyle, Pedro, and Madeline form a partnership. There is no agreement as to the duration of the partnership. The
partnership is a partnership at will.
a.
True
b.
False
True
Moderate
8. The dissolution of a partnership means the same as its termination.
a.
True
b.
False
False
Easy
9. Jeremiah was a partner in a partnership, but he quit unexpectedly when he got his feelings hurt over an internal
decision. Dissociation has occurred.
a.
True
b.
False
True
Moderate
10. A partner always has the right, though not the power, to leave a partnership.
a.
True
b.
False
False
Easy
11. A partnership can only be held liable for the partners’ authorized acts.
a.
True
b.
False
False
False
Moderate
12. Elion was a partner in a partnership. Elion’s death would be considered a wrongful dissociation.
a.
True
b.
False
False
Moderate
Bloom’s: Comprehension
13. A partnership is liable for both the negligent and intentional acts of a partner if the acts were committed within the
ordinary course of the partnership’s business.
a.
True
b.
False
True
Easy
Bloom’s: Knowledge
14. Lily is involved in the winding–up of her partnership. Lily is NOT entitled to compensation for her work since she is a
partner.
a.
True
b.
False
False
Moderate
Bloom’s: Comprehension
15. Linda, a partner, is involved in the winding-up of the partnership. A lucrative business opportunity for the partnership
arises. Linda does not have the right to take on this new business.
a.
True
b.
False
True
Moderate
Bloom’s: Application
16. Charles and Becky are partners. If they have a disagreement, the Uniform Partnership Act will govern their respective
rights with each other
a.
despite any written partnership agreement they may have signed.
b.
only if they do not have a written partnership agreement that addresses the issue of dispute.
c.
only if they agree to be bound by the UPA.
d.
only if their written partnership agreement states that they will be bound by the terms of the UPA.
Moderate
Bloom’s: Comprehension
17. In Banker v the Estate of Banker the court held that
a.
it could not intervene in the affairs of a partnership.
b.
when proof of an agreement is lacking, a partner cannot receive compensation for work done.
c.
regardless of a written agreement to the contrary, a partner can receive compensation for work done.
d.
all parties doing work for a partnership are entitled to compensation for work done to further the partnership
business.
Moderate
Bloom’s: Application
18. In determining if a partnership exists, the courts will consider all of the following factors EXCEPT
a.
management of the business.
b.
actions of the persons involved.
c.
the nature of the business.
d.
profit.
Moderate
Bloom’s: Comprehension
19. Jackie and Robert own an apartment building as partners. Cyndi, one of their tenants, gives Robert written notice she
will be moving out at the end of the following month. Robert did not tell Jackie that Cyndi was moving. Has Cyndi
properly given notice to the partnership?
a.
Yes. Notice to Robert was notice to the partnership.
b.
Yes, if it is determined that Robert acted negligently in failing to notify Jackie.
c.
No. Cyndi has an obligation to notify both Robert and Jackie.
d.
No. Jackie was not notified since Robert never told her Cyndi was moving.
Moderate
Bloom’s: Application
20. Which of the following events occurs first with respect to the ending of a partnership?
a.
Termination
b.
Winding up
c.
Dissolution
d.
Distribution of proceeds
Easy
Bloom’s: Knowledge
Moderate
Bloom’s: Comprehension
21. Theresa and Bobbi bought a racecar together. They agreed to share all expenses and split net profits equally. There
was no agreement as to the duration of the partnership. After about a year, Bobbi decided she was tired of the racing
business and left the partnership. Bobbi did not violate the partnership agreement. Theresa claims Bobbi’s leaving was
wrongful. Is Theresa correct?
a.
Yes, Bobbi was legally required to secure Theresa’s permission before leaving the partnership.
b.
Yes, Bobbi had a legal duty to stay in the partnership until Theresa was willing to agree to end the
relationship.
c.
Yes, Bobbi had a legal duty to stay in the partnership until a new partner could be found.
d.
No, in a partnership at will, a partner has the right to leave the partnership at any time.
22. Art and Alma made capital contributions of 60% and 40% respectively to their newly formed partnership, AA &
Associates. They did not have a written partnership agreement. At the end of the first year, the partnership made a profit
of which Alma now claims half. However, Art maintains he should receive 60%. Who is correct?
a.
Art, since the UPA presumes that profits and losses are divided in proportion to capital contribution.
b.
Art, since it would only be fair.
c.
Alma, because she works in the business.
d.
Alma, as the UPA provides that profits are split equally unless the partners agree otherwise.
Moderate
Bloom’s: Application
23. Sandy, Ramon, and Bonnie were partners. Sandy dissociated from the partnership. Bonnie and Ramon decided to
continue the business. When Sandy dissociated, there was a $50,000 debt owed to Great State Bank. Which statement is
correct?
a.
Sandy remains liable on the $50,000 debt owed to Great State Bank.
b.
Only Ramon and Bonnie are liable for the $50,000 debt owed to Great State Bank.
c.
The debt is extinguished as a result of the dissociation.
d.
Whether Sandy remains liable depends on whether she filed a statement of dissociation.
Moderate
Bloom’s: Application
24. At what stage are the partnership debts paid and the proceeds distributed to the partners?
a.
During dissolution
b.
During winding-up
c.
During termination
d.
During dissociation
Easy
Bloom’s: Knowledge
Moderate
Bloom’s: Application
25. When two parties incur the liability of a partnership without actually being partners, it is referred to as
a.
partnership by apparent authority.
b.
a wrongful association.
c.
a charitable partnership.
d.
partnership by estoppel.
26. If Kay, a partner in an auction business, has a personal creditor who is aggressive about collecting the debt,
a.
Kay can sell her share in the partnership to repay the debt, regardless of what her partners want her to do.
b.
the creditor cannot attach the partnership property to pay off the debt.
c.
the creditor can attach partnership profits by obtaining a charging order.
d.
Kay cannot repay her personal creditor through her partnership assets under any circumstances.
Moderate
Bloom’s: Application
27. Kayla and Marshall formed a partnership. Marshall incurred a debt in the ordinary course of the partnership business.
If the debt is not paid, the creditor may sue:
a.
only Marshall.
b.
only the partnership.
c.
the partnership and the partners together, or in separate lawsuits, or in any combination.
d.
only Marshall and the partnership in a lawsuit together or the creditor loses any right to sue the partnership.
Moderate
Bloom’s: Application
28. Gary and Herman are partners in a lawn mower repair business in Ohio. While Gary is on vacation, visiting his sister
in Georgia, his sister’s neighbor has trouble with her mower and Gary fixes it for her. She insists on paying him. Gary
a.
may keep the payment since he did the work while he was on vacation.
b.
must turn the money over to the partnership because he earned it doing the kind of work that the partnership
does.
c.
may not accept the money because it would create a conflict of interest.
d.
may not accept the money because it would mean he was taking a business opportunity away from the
partnership.
Moderate
Bloom’s: Application
29. Judy believed that Ray and Don were partners in an automotive repair business. Ray and Don were not partners. Ray
owned the business as a sole proprietor. Ray, however, allowed Don, his unemployed brother-in-law, to be around the
business. When Judy was having her car repaired, Ray told her “my partner here, Don, will give you a ride to work this
Easy
Bloom’s: Knowledge
morning so you can leave your car here. He will give you a ride back here after work and your car will be done.” Judy
allowed Don to drive her to work. While riding with Don, Don accidentally ran a stop light and caused an accident. Judy
was hurt and claims that both Don and Ray are liable to her. Is she right?
a.
Yes. This illustrates a partnership by estoppel.
b.
No. Don was not a partner in the business.
c.
No. Don was a dissociated partner.
d.
No. There was no intent to have a partnership.
30. Anne and Mike were winding up their partnership. Mike was approached by a person who wanted the partnership to
do some work for him. Mike agreed that the partnership would do the work. Generally speaking, in such a situation
a.
Anne is not liable since the partnership was in the winding up phase.
b.
Anne is not liable since she did not consent to the work.
c.
Anne is not liable since Mike’s conduct was wrongful.
d.
Anne is liable unless she filed a statement of dissolution with the Secretary of State within 90 days of when
Mike entered the contract.
Bloom’s: Comprehension
31. Which of the following is a rightful dissociation?
a.
A partner in a partnership at will serves notice that he intends to withdraw.
b.
A partner in a term partnership withdraws before the end of the term.
c.
A partner in a term partnership becomes bankrupt.
d.
A partner violates the partnership agreement.
Bloom’s: Comprehension
32. Belinda and Franco are partners in a jewelry business. Without Franco’s knowledge, Belinda buys a ring from Janice
for $2,200. Janice has no reason to question the transaction since she is a regular customer of the store and assumes
Belinda has authority to buy her ring. When Franco finds out he is furious and does not want to honor the agreement.
Which of the following is TRUE?
a.
Belinda acted with absolute authority and the partnership must honor the transaction.
b.
Belinda acted with actual authority and the partnership must honor the transaction.
c.
Belinda acted with implied authority and the partnership must honor the transaction.
d.
Belinda acted with apparent authority and the partnership must honor the transaction.
Bloom’s: Application
Bloom’s: Application
33. Lori and Dan own a small restaurant as partners. Dan works several hours a day cooking, waiting on tables, doing the
books, and so forth. Dan believes he is entitled to be paid at least a standard wage for all his work since, at the present
time, the part-time kitchen helpers earn more than he does! Lori claims Dan is not entitled to anything other than one-half
the net profits. Is Lori right?
a.
Yes. The UPA states a partner may not collect a “wage” from the partnership business under any
circumstances.
b.
Yes, if there is no agreement between Lori and Dan allowing for either of them to be paid wages for work
done at the restaurant.
c.
No. Dan may collect only minimum wage, as required by federal law.
d.
No. Dan may collect a fair wage for the work he has performed.
34. Randy, Joan, and Arnie are partners. Their agreement did not address dissociation nor how long the partnership would
last. Randy decided to leave the partnership. What happens when Randy serves notice he intends to withdraw?
a.
The partnership can either buy him out and continue in business or wind up the business and terminate the
partnership
b.
The partnership automatically terminates
c.
The partnership winds down
d.
The partnership estoppes
Moderate
Bloom’s: Comprehension
35. Dusty dissociated from a partnership. To protect himself from debts of the partnership after he leaves, Dusty should
a.
secure an indemnity bond.
b.
file a statement of dissociation with the Secretary of State.
c.
execute a formal written agreement with the remaining partners.
d.
demand that the partnership terminate.
Moderate
Bloom’s: Comprehension
36. Ending a partnership involves which of the following three steps?
a.
Dissolution, winding up, and termination
b.
Dissociation, winding down, and consummation
c.
Failure, dividing up, and paying off
d.
Dissociation, agreement, and dissolution
Easy
Bloom’s: Knowledge
Moderate
Bloom’s: Application
37. Nancy was a partner of a small business. She could see that the business was beginning to fail and that it was very
unlikely it would recover. Not wanting to lose her investment, she asked that the court require the partnership to dissolve
since she did not have a legal right to withdraw at that time. Does a court have the authority to order a partnership to
dissolve?
a.
Yes. A court can dissolve a partnership when it is convinced that the partnership is unlikely to succeed.
b.
Yes. Under the UPA, if a partner can show the court the business suffered a loss the year before the case was
filed, the court can dissolve the partnership.
c.
No. A court can only dissolve a partnership at the request of all the partners.
d.
No. A court does not have authority to dissolve the partnership.
38. Astrid and Razi formed a partnership in which they agree to share profits 60 percent to Astrid and 40 percent to Razi.
Losses will be shared
a.
equally, unless otherwise agreed.
b.
60 percent to Astrid and 40 percent to Razi, unless otherwise agreed.
c.
according to their capital contributions to the partnership.
d.
in whatever proportion provides the greatest tax advantage for the partners that year.
Bloom’s: Comprehension
39. Max, Jenny, and Craig are partners. They have purchased an elegant Victorian home and converted it into an office for
their partnership. Craig decides to use the partnership’s office to host some evening parties. Craig has a sideline business
of arranging expensive gatherings and charging each person a handsome price to attend these “elite” parties. When Max
and Jenny find out what Craig is doing, they demand that he pay them for the use of the property. How much money, if
any, is Craig required to pay the partnership?
a.
Nothing. He is free to use partnership property for his own uses.
b.
Nothing, but he will be removed from the partnership for violating his fiduciary duty.
c.
He must turn over any profits he earned from this activity.
d.
He must pay the fair market value for the use of the house.
Bloom’s: Application
40. Jack and Jill were living together. Jack wanted to start a small retail store, but did not have good credit. Jill, whose
credit was excellent, signed loan agreements with Jack so he could borrow the money to start the business. Jack used
business cards that stated he was the “owner” of the business. He and Jill filed separate tax returns. Jack stated he was
self-employed and claimed the business was a sole proprietorship. The money that was earned from the store was placed
into a joint checking account owned and used by Jack and Jill. When there were significant decisions to be made about the
business, such as deciding to franchise the business, the decision was made jointly by Jack and Jill.
Five years after the business was started, Jill left Jack. She claimed she was entitled to one-half the business’s profits since
she and Jack were partners. Jack disagreed and claimed they never had a partnership. Discuss Jill’s claim.
Bloom’s: Comprehension
41. Dennis and Claudia were partners who operated a retail store. They agreed to end the partnership. Dennis agreed to
stay at the store and oversee the going-out-of-business sale. Claudia agreed to deal with the accountants and other related
matters not directly related to the hands–on operation of running the store. Claudia received notice that the store’s liability
policy would expire on July 1. She decided not to renew the policy and let it lapse. The going-out–of-business sale would
not be completed until August 1. In July, a customer slipped and fell in the store. When Dennis learned that Claudia had
allowed the liability policy to lapse, he was very upset and claimed he should not be liable for the customer’s injury. Is
Dennis liable to the customer? Explain.
42. Identify and briefly discuss the management rights and duties of a partner.
43. Village Bank believed that Spencer and Nadia were partners in an e-business. Spencer and Nadia were not partners.
Spencer owned the business as a sole proprietor. Nadia, however, was a close friend of Spencer. When Spencer visited
Village Bank in an effort to obtain a $10,000 loan, Nadia went with him. During the conversation with the banker,
Spencer referred to Nadia as “my partner.” Village Bank made the business loan believing that Spencer and Nadia were
partners. Spencer defaulted on the loan. Village Bank claims that both Spencer and Nadia are liable on the loan. Will
Nadia be liable on the loan?
44. Andy, Becky and Charlie formed a partnership. Their business was to create Web pages for students. They would take
a person’s academic and career information and make an attractive Web page. Andy supplied the computer and technical
advice. Becky was the business manager. Charlie did the bulk of the marketing. Charlie and Becky became irritated with
Andy, as it seemed they did more work than he did. Charlie and Becky decided to end their partnership with Andy.
During the winding up process, how are the assets of the partnership paid out?
45. Ramiro is dissociated from the partnership he helped form ten years ago. If his partners want to continue the business,
what must they do? Does it make any difference if the dissociation was wrongful?
