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REG mcq


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#1 labelladell

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Posted 21 February 2014 - 01:04 AM

I'm studying for REG and I came across this question in my Roger book:
 

Which of the following is an advantage of forming a limited liability company (LLC) as opposed to a partnership?

a. The entity may avoid taxation.
b. The entity may have any number of owners.
c. The owner may participate in management while limiting personal liability.
d. The entity may make disproportionate allocations and distributions to members.

ANSWER:

Choice "c" is correct. Unlike a general partnership, the owner of an LLC may participate in management while limiting personal liability. An LLC owner's liability is limited to their investment in the business plus their own individual negligence or malpractice. Even in a limited liability partnership (LLP), where partners may be protected against the malpractice of other partners (unless the malpractice occurred under their supervision), partners may still be held liable for the contractual debts of the business.

Choice "a" is incorrect. Both partnerships and LLCs are passthrough entities for federal income tax purposes, so entity-level taxation avoidance is not an advantage of an LLC as opposed to a partnership.

Choice "b" is incorrect. All states allow LLCs to have only one owner, whereas partnerships must have at least two. Either form of business organization may have any number of owners, plural.

Choice "d" is incorrect. Both partnerships and LLCs may make disproportionate allocations and distributions to members, so it is not an advantage an LLC has over a partnership.

 

I picked C as the correct answer, but I think B is also correct. This answer explanation seems to be a mistake. LLCs can have 1 or more which means they can have any number. Partnerships can have 2 or more, which means there is some restriction.



#2 rutty_shah

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Posted 16 May 2014 - 08:00 PM

B. is not correct. The question is secifically asking about the advantages of LLC vs. a partnership. The main advantage of LLC is that the owner's personal risk to the business is minimized even they have full managment of it. The explaination is simply saying that partnership by defination has to have more than one owenrs whereas all states' law allows for LLC to be a sole propritorship (single owner). But either LLC or partnerships are allowed to have any number of owners. I admit the explaination is a bit awkward though.

 

Hope this helps.



#3 vickys26

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Posted 23 August 2014 - 05:59 AM

What should be the answer for the below mcqs:

 

1. Mark & Jones, CPAs, and its client, Smith Lighting, are discussing a possible advisory engagement in which the firm would review Smith's account receivable (A/R) system and recommend changes that would improve the company's collection process and speed collections. Smith proposes to pay Mark & Jones a fee based on improved performance in A/R collections. Would such an arrangement raise any ethical concerns?

A. No, but only if Smith is a publicly traded company subject to SEC and PCAOB rules.

B. No, provided Mark & Jones documents the arrangement clearly in the engagement letter.

C. Yes, but only if Mark & Jones was performing other services for Smith.

D. Yes, if Mark & Jones also performed a review engagement for Smith.

 

 

2. Ben, a consulting manager of George & Co., is considering membership on an audit client's board of directors. Ben does not provide any services to this client. Which of the following statements describing this situation is true?

A. Ben may join the board because he is not an auditor.

B. Ben may join the board because he is not a partner.

C. Ben may not join the board because the rules prohibit all professionals in the firm from serving as a director of a client.

D. Ben may not join the board because only non-managerial employees of the firm may serve as client management.



#4 Diemthoang

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Posted 06 February 2015 - 04:44 PM

Is that supposed in regulation topic or audit?