Bob, Carol, and Ted Have Decided to Go into Business

question 53

Multiple Choice

Bob, Carol, and Ted have decided to go into business as a limited partnership importing and selling exotic spices. Bob and Carol will manage the business, and Ted will have no role in the day-to-day operations. Bob and Carol have each invested $500,000, and Ted has contributed the building and land that the business will be operated from. Alice, a customer, contracts a rare disease from a contaminated spice sold by the company and sues. Alice is awarded a judgment for $5 million. After she exhausts the assets of the partnership, having the property and building sold and seizing all other property, $3 million remains unpaid.

• A) Bob, Carol, and Ted each owe $1 million, and Alice must sue each for his or her part.
• B) Bob, Carol, and Ted each owe $3 million jointly and severally, so Alice may sue one, two, or all three for the $3 million balance.
• C) Bob and Carol each owe $1.5 million, and Alice must sue each for his or her part; Ted has no additional liability.
• D) Bob and Carol each owe $3 million jointly and severally, so Alice may sue one or both of them; Ted has no additional liability.

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Definitions:

IFRS

International Financial Reporting Standards, a set of accounting standards developed by the International Accounting Standards Board (IASB) that is used globally.

GAAP

Generally Accepted Accounting Principles; a framework of accounting standards, rules and procedures used in the compilation of financial statements in the U.S.

Treasury Stock Transaction

Refers to the buying back or reacquisition of previously sold shares by the issuing company, reducing the amount of outstanding stock on the open market.

Additional Paid-in Capital

The amount of money investors pay above the par value of a stock.