A New Partner, Gary, Contributes Cash and Assumes a Share

question 105

Multiple Choice

A new partner, Gary, contributes cash and assumes a share of partnership liabilities. Diane's capital, profits, and loss interest in the partnership is reduced by 5% due to the admission of Gary. The Sec. 751 rules do not apply. Partnership liabilities at the time Gary is admitted are $200,000, and all of the liabilities are recourse debts for which the partners share the economic risk of loss in the same way they share partnership profits. Diane's basis in the partnership interest prior to Gary's admission is $5,000. Due to the admission of Gary, partner Diane has

• A)no recognized gain or loss and a partnership interest basis of $10,000.
• B)no recognized gain or loss.
• C)a recognized gain of $5,000 and a partnership interest basis of zero.
• D)a recognized gain of $5,000 and a partnership interest basis of $5,000.

Understand the doctrine of respondeat superior and its application in liability cases involving employees or agents.

Recognize the requirements for properly terminating an agency relationship and the importance of notice to third parties.

Differentiate between expressed agency, implied agency, apparent agency, and agency by ratification.

Identify the roles and obligations within an agency relationship, including those of agents and principals.

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