AICPA CPA-Business Exam - Topic 2 Question 4 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 4
Topic #: 2

Locke and Vorst were general partners in a kitchen equipment business. On behalf of the partnership, Locke contracted to purchase 15 stoves from Gage. Unknown to Gage, Locke was not authorized by the partnership agreement to make such contracts. Vorst refused to allow the partnership to accept delivery of the stoves and Gage sought to enforce the contract. Gage will:

ALose, because Locke's action was not authorized by the partnership agreement.

BLose, because Locke was not an agent of the partnership.

CWin, because Locke had express authority to bind the partnership.

DWin, because Locke had apparent authority to bind the partnership.

Show Suggested Answer

Suggested Answer: D

Choice "d" is correct. Every partner is an agent of the partnership and has apparent authority to bind the partnership to contracts that appear to carry on in the usual way the business of the partnership. It would be usual for a partner in a kitchen equipment business to have authority to purchase stoves. Thus, Gage will win because of Locke's apparent authority.

Choice "a" is incorrect. Every partner is an agent for his partnership and has apparent authority to bind the partnership to contracts that appear to carry on in the usual way the business of the partnership.

Choice "b" is incorrect. Every partner is an agent of the partnership.

Choice "c" is incorrect. Locke did not have express authority to purchase the stoves. The facts state that Locke was not authorized to purchase the stoves and thus lacked express authority.

by Cordelia at May 06, 2022, 07:37 AM

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5 months ago

Developing a common culture sounds key, but I'm not sure how it compares to the other options. I wish we had more examples on that.

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