Messitt and McNulty Spend $50,000 Each to Form a Law

question 94

Multiple Choice

Messitt and McNulty spend $50,000 each to form a law partnership.On the first day someone trips over a potted plant that had been place in the lobby by McNulty.The person sues Messitt and McNulty and is awarded $400,000.Which statement explains what liability Messitt and McNulty would face?  

• A) Each partner will have to pay $200,000. 
• B) If McNulty cannot pay any of the award, then Messitt is liable for $400,000. 
• C) The partners are not liable for the award; the firm is. 
• D) Only McNulty is personally responsible for the damages because he was the one who put the potted plant in the lobby.

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Definitions:

Dividends

Payments made by a corporation to its shareholder members, usually derived from the company's profits.

AASB 101

An accounting standard issued by the Australian Accounting Standards Board that prescribes the basis for presentation of general purpose financial statements.

Statement of Changes

A financial statement that shows how the equity of a company has changed over a certain period due to various reasons like profits, losses, or distributions.

Deferred Tax Liability

A tax obligation due in the future for income that has been recognized in the financial statements before it is taxable by tax authorities.