Deck 16: Limited Partnerships and Joint Ventures

Question 1

Steven invested $25,000 as a limited partner in a partnership in 20x7. His partnership interest is 30%. The partnership reported a business loss of $100,000 in 20x7. Steven is in a 45% tax bracket. What is the net cash cost of Steven's investment in 20x7?

A) $-0-
B) $11,500
C) $13,750
D) $25,000

Answer 1

C

Question 2

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

Answer 2

B

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 his/her 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.

Answer 3

B

Question 4

Wayne and Wendy are equal partners in ABC Windows. Wayne is a general partner and Wendy is a limited partner. Each partner 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) Wayne may claim a loss for tax purposes of $25,000 this year.
B) Wendy may claim a loss for tax purposes of $25,000 this year.
C) Wayne may claim a loss for tax purposes of $50,000 this year.
D) Wendy may claim a loss for tax purposes of $50,000 this year.

Question 5

Teresa White is one of 5 limited partners in House Designs Enterprises (HDE). Each limited partner contributed $100,000 five years ago when the enterprise began. During the current year, HDE generated pre-tax profits of $500,000. The only 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 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 the year.

Question 7

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?

A) Joint ventures and partnerships are separate taxable entities.
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.
C) The proportionate allocation of the small business applicable to corporate partners does not apply to corporate joint venture members.
D) Joint ventures have less flexibility than partnerships with regard to their tax decisions.