Deck 16: Limited Partnerships and Joint Ventures

Question 1

Steven invested $25,000 as a limited partner in a partnership. His partnership interest is 30%. During the first year, the partnership had a business loss of $100,000. Steven is in a 45% tax bracket. What was the after-tax value of Steven's investment?

A) $13,500
B) $13,750
C) $11,250
D) $11,500
E) *Restricted to 'at-risk amount'

Answer 1

B

Question 2

Wayne and Wendy are equal partners in ABC Windows. Wayne is a general partner and Wendy is a limited partner. Both partners have invested $20,000 in the company. ABC Windows experienced a loss of $50,000 this year. Which of the following statements regarding this loss is TRUE?

A) Wendy may claim a loss for tax purposes of $25,000 this year.
B) Wendy may claim a loss for tax purposes of $50,000 this year.
C) Wayne may claim a loss for tax purposes of $25,000 this year.
D) Wayne may claim a loss for tax purposes of $50,000 this year.

Answer 2

C

Question 3

Three Hills Partnership had profits of $210,000 in 20X1. Shawna Hill invested $100,000 as a limited partner, and her partnership interest is 30%. Shawna is in a 45% tax bracket. What is Shawna's after-tax return on her investment in the partnership?
(Rounded)

A) 63%
B) 30%
C) 48%
D) 35%

Answer 3

D

Question 4

Teresa White is one of 5 equal limited partners in House Designs Enterprises (HDE). She contributed $100,000 five years ago when the enterprise began. During the current year, HDE generated pre-tax profits of $500,000. The sole general partner, Betty Carmel, receives 55% of the company's profits. Both
Teresa and Betty are subject to a 49% marginal personal tax rate.
Required:
Calculate Teresa's after-tax rate of return on her investment.

Question 5

While partnerships and joint ventures have some similarities, they have significant differences. Which of the following is FALSE with regard to partnerships and joint ventures?

A) Neither joint ventures nor partnerships are separate taxable entities.
B) Partners in a partnership and members of a joint venture are both restricted to their profit-sharing ratio of the $500,000 small business deduction limit.
C) All partners in a partnership are subject to the same CCA decision in a given tax year, while members of a joint venture may each decide their own amount of CCA to be deducted.
D) Joint ventures are more limited in their use than partnerships, although they have more flexibility with regard to their tax decisions.

Question 6

Jerome has a 10% interest in a limited partnership. The adjusted cost base of Jerome's partnership interest at the beginning of 20X0 was $30,000. During 20X0 the partnership reported a $10,000 taxable capital gain and $150,000 in
business income. At the end of 20X0 Jerome had an outstanding loan balance of
$10,000 with the partnership.
Required:
Determine Jerome's 'at-risk amount' at the end of 20X0.

Question 7

An investor has $50,000 to invest as a limited partner in a partnership. The individual will be one of several limited partners in the business. The business is not expected to make a profit for at least three years. Why has the investor most likely chosen to invest in this business?

A) None of the above. An investor would never choose to invest in such a business.
B) The flow-through of losses is an important issue for the investor.
C) The investor will be guaranteed to receive the $50,000 back if the venture fails.
D) The investor is not in a hurry to recover his/her investment.

Question 8

A friend of yours is considering entering into a joint venture but knows very littl
about this form of business structure. You have been asked to provide the following information:

A) What is the purpose of a joint venture?
B) How are joint ventures taxed?
C) Give an example of a joint venture.