Question 1

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)Wayne 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.

B

Accepted Answer

Wayne, as a general partner, can claim the full loss of $50,000 for tax purposes, but since they are equal partners, he can claim $25,000. Wendy, as a limited partner, can only claim up to her investment amount, which is $20,000.

Question 2

A friend of yours is considering entering into a joint venture but knows very little about this form of business structure. You have been asked to provide the following information.&#10;A)What is the purpose of a joint venture?&#10;B)How are joint ventures taxed?&#10;C)Give an example of a joint venture.

Accepted Answer

A)The purpose of a joint venture is to carry out a single transaction or to engage in an activity of limited duration.
B)A joint venture is not a separate taxable entity. The income from a joint venture is
distributed to its members, and members can individually choose the timing and use of some expenses, such as CCA and doubtful accounts.
C)Examples of joint ventures are: construction projects, resource exploration activities, research and development projects, entertainment projects - i.e. movies, concerts, and plays.

Question 3

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)$13,750
C)$13,500
D)$11,250

B

Accepted Answer

Steven's share of the loss is $30,000 (30% x $100,000). His tax savings from the loss is $13,500 ($30,000 x 45%). The net cash cost of his investment is $11,500 ($25,000 - $13,500).

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 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.

Accepted Answer

The answer of Teresa White is one of 5 equal...

Question 5

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 flow-through of losses is an important issue for the investor.
B)The investor plans to use his/her management expertise in the business in order to generate profits.
C)The investor will be guaranteed to receive the $50,000 back if the venture fails.
D)None of the above. An investor would never choose to invest in such a business.

Accepted Answer

The investor is likely interested in the flow-through of losses, which can be used to offset other income on their tax return, providing a potential tax benefit.

Question 6

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

Accepted Answer

Shawna's after-tax return on her investment in the partnership is 35%. This is calculated as follows:Shawna's share of the partnership profits = $210,000 x 30% = $63,000Shawna's after-tax return = $63,000 x (1 - 45%) = $34,650Shawna's after-tax return on her investment = $34,650 / $100,000 = 34.65% or 35% (rounded)

Question 7

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.

Accepted Answer

The answer of Jerome has a 10% interest in a...

Question 8

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?&#10;A)CCPC partners in a partnership, and CCPC members in a joint venture, are both restricted to their profit-sharing ratio of the $500,000 small business deduction limit.&#10;B)Joint ventures are more limited in their use than partnerships, although they have more flexibility with regard to their tax decisions.&#10;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.&#10;D)Joint ventures and partnerships are not separate taxable entities.

Accepted Answer

In a partnership, the $500,000 small business deduction limit is shared among the partners based on their profit-sharing ratio, but this is not applicable to joint ventures.

Deck 16: Limited Partnerships and Joint Ventures