Question 1

While partnerships and joint ventures have some similarities, they have significant differences.Which of the following is TRUE with regard to partnerships and joint ventures?&#10;A)Joint ventures and partnerships are separate taxable entities.&#10;B)All members of a joint venture are subject to the same CCA decision in a given tax year, while partners in a partnership may each decide their own amount of CCA to be deducted.&#10;C)The proportionate allocation of the small business applicable to corporate partners does not apply to corporate joint venture members.&#10;D)Joint ventures have less flexibility than partnerships with regard to their tax decisions.

Accepted Answer

C

Question 2

Which of the following statements regarding limited partnerships is false?&#10;A)A limited partnership is typically easier to establish and maintain than a corporation.&#10;B)Passive investors are permitted limited liability.&#10;C)The general partner must have complete responsibility of all management decisions.&#10;D)The absence of double taxation increases the chance of providing high rates of return to investors.

Accepted Answer

A

Question 3

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)The investor will be guaranteed to receive the $50,000 back if the venture fails.
B)The flow-through of losses is an important tax consideration for the investor.
C)The investor plans to use their management expertise in the business in order to generate profits.
D)The investor will be able to claim losses in excess of the $50,000 investment.

B

Accepted Answer

The fact that the business is not expected to make a profit for at least three years implies that there will be losses during this period. As a limited partner, the investor will be able to benefit from the flow-through of these losses, which means that they will be able to claim these losses on their personal tax return. This is a common tax consideration for investors in limited partnerships. The other answer choices are not applicable in this scenario - limited partners are not guaranteed to receive their investment back if the venture fails (as they are taking on a risk), and there is no indication that the investor plans to use their management expertise to generate profits or that they will be able to claim losses in excess of their investment.

Question 4

Jamie Maslov and Teagan Phan are equal partners in Masphan Builders.Jamie is a general partner and Teagan is a limited partner.Each partner invested $20,000 in the company.Masphan experienced a loss of $50,000 this year.Which of the following statements regarding this loss is TRUE?

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

Accepted Answer

Jamie is a general partner and is personally liable for the debts and losses of the partnership. Therefore, Jamie may claim a loss for tax purposes of $25,000 this year.

Question 5

Dana Bakker invested $25,000 as a limited partner in a partnership in 2020.Dana's partnership interest is 30%.The partnership reported a business loss of $100,000 in 2020.Dana is in a 45% tax bracket.What is the net cash cost of Dana's investment in 2020?

A)$7,500
B)$11,250
C)$13,750
D)$25,000

Accepted Answer

Dana's share of the business loss is $30,000 ($100,000 x 30%). As a limited partner, Dana's maximum loss is limited to her initial investment of $25,000. Therefore, she can claim a tax deduction of $25,000. 
The net cash cost of her investment is the amount she invested minus the tax savings. 
Tax savings = $25,000 x 45% (tax bracket) = $11,250 
Net cash cost = $25,000 - $11,250 = $13,750. 
Therefore, the answer is C.

Question 6

The ability to flow through limited partnership losses is typically most important in which of the following type of venture?&#10;A)Zero-risk&#10;B)Low-risk&#10;C)Medium-risk&#10;D)High-risk

Accepted Answer

The ability to flow through limited partnership losses is typically most important in high-risk ventures because these types of ventures have a higher likelihood of incurring losses, and investors need the ability to offset those losses against other sources of income.

Question 7

Meadow Lane Partnership had profits of $210,000 in 2020.Morgan Bellis invested $100,000 as a limited partner, which represents a 30% partnership interest.Morgan is in a 45% tax bracket.What is Morgan's after-tax return on the investment in the partnership? (Rounded)

A)17%
B)35%
C)48%
D)63%

Accepted Answer

The answer of Meadow Lane Partnership had profits of $210,000...

Deck 16: Limited Partnerships and Joint Ventures