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Trusted ExpertsFor more than 25 years we’ve helped students pass over 250,000 exams and we’ve done so with industry leading pass rates! Disproportionate Sharing is an oil and gas sharing arrangement where the general partner pays a portion of the cost but receives a larger portion of the program’s revenues. Applying "Disproportionate Sharing" to Securities Exams:A general partner in a limited partnership has all the management responsibility, and therefore more liability than limited partners. The investors are the limited partners, and their role is that of "silent partner" in that they have no management responsibility. When an oil and gas limited partnership is formed it will define what the "sharing arrangement" is between the general and limited partners. In a disproportionate sharing arrangement or disproportionate working interest, the general partner makes a smaller investment but receives a larger share of the program’s revenue. Other types of sharing arrangements include functional allocation and reversionary working interest.
An investor's basis in a limited partnership would be decreased by which of the following? Recourse debt. In an oil and gas program with a functional allocation sharing arrangement: (A) The sponsor assumes both deductible and non-deductible costs. A younger client with a moderate amount of funds is considering the purchase of a home in the near-term future. For this reason, the investor wishes to keep their assets as liquid as possible in the event that the right deal on a home comes along. As this client's registered representative, which of the following would carry the LEAST amount of liquidity and therefore be unsuitable for this client? (A) Investment in bonds and bond funds focused on municipal
securities If a general partner in a limited partnership also registers limited partnership interests for sale in a state(s) as securities, he may be called a(n) (A) underwriter A partnership which is developed to buy computers and then lease them to businesses is a: (A) equipment leasing partnership An equipment lease limited partnership could be done on all of the following except: (A) rail cars In what order of preference will claims be paid upon dissolution of a limited partnership? General partners' capital claims Which of the following are true regarding a limited partner who has invested in a limited partnership tax shelter? The limited partner flexibility concerning the types of investment made by the partnership A correct statement concerning a real estate limited partnership is that: (A) The ordinary and necessary expenses of the general partner(s) in operating the business are completely nondeductible. The costs incurred with an oil and gas limited partnership which ends up as a "dry hole": (A) must be depreciated In an oil and gas DPP the deductible (intangible) expenses are taken by the investors. The nondeductible (tangible) costs are capitalized by the sponsor. This is a: (A) functional allocation If a general partner organizes and registers the limited partnership, he is acting as: (A) Underwriter In regard to recourse loans in a DPP Any principal (capital) repayment reduces the investor's basis. Which of the following will be treated as income from a passive activity for federal tax purposes? (A) Dividends received from ordinary corporate stock. A certificate of limited partnership would normally contain which of the following? Information concerning future contributions by limited partners. Which of the following is true of an oil and gas program with a disproportionate sharing arrangement? (A) The sponsor will bear a specified percentage of the costs while receiving a higher percentage of the revenues. The document which specifies the areas that an individual condominium owner has exclusive use of and the common areas which are shared with all other unit owners is the: (A) Unit Deed Compared with owning corporate stock, a person investing in a limited partnership would normally receive which one of the following? (A) A much greater management role in the business The potential advantage of a DPP investment in raw land is (A) investment interest deduction When evaluating a limited partnership as an investment, the MOST important factor to consider is: (A) The tax write-offs A certificate of limited partnership would be amended for all of the following reasons EXCEPT: (A) An error is discovered in the certificate. Which of the following are reasons why Direct Participation Programs are formed as Limited Partnerships? The partnership is taxed at a lower rate than the partners. Which of the following are important factors in evaluating a real estate DPP? The market value of adjoining property. Corporations differ from limited partnerships in The conduit theory Which two of the following are true of exploratory oil and gas drilling programs? The programs represent drilling on unproven properties with a high risk of not discovering reserves. Which of the following limited partnership oil and gas programs have the lowest capital risk: (A) Exploratory One of your clients is looking into investing in direct participation programs. He is examining several different types of programs. One of the programs that he is evaluating promises a relatively high tax write-off in the immediate future with low costs for land and rights associated with the land and minerals. Of the following, which BEST describes programs with these features? (A) This would be a developmental drilling program. Which of the following instruments/asset classes would generally be considered to be the least liquid? (A) Over the counter stock Which of the following features are offered to both the investors of corporations and the investors of limited partnerships? Limitation of liability If a limited partnership is offered to the public under Federal securities laws: (A) It is exempt from registration. Which of the following are types of oil and gas direct participation programs might be considered the riskiest?The investor partners with a company that drills wells in an already-proven area. Exploratory Drilling Program – considered as a 'high risk, but high reward' kind of investment. This could also be thought of as the riskiest kind of program.
Which of the following are types of oil and gas direct participation program?Types of Direct Participation Programs
The most common DPPs are non-traded REITs (about two-thirds of the DPP market), non-listed business development companies (BDC) (which act as debt instruments for small businesses), energy exploration and development partnerships, and equipment leasing corporations.
Which of the following oil and gas direct participation programs might be considered the riskiest quizlet?Exploratory programs, also called wildcatting programs, are those that look for resources near existing producing wells in the hopes of finding more deposits. These are considered riskiest of the oil and gas programs—exploratory, income or a combination of the 2.
Which of the following are considered intangible drilling costs for an oil and gas DPP quizlet?Intangible drilling costs are the noncapital costs of putting in a well. They are currently deductible expenses, like fuel, wages, and rent. An intangible drilling cost is one which, after expenditure, has no salvage value. A customer invests $20,000 in a DPP and signs a recourse note for $50,000.
Which of the following are considered intangible drilling costs IDCS for an oil and gas DPP?Intangible drilling costs are defined as costs related to drilling and necessary for the preparation of wells for production, but that have no salvageable value. These include costs for wages, fuel, supplies, repairs, survey work, and ground clearing. They compose roughly 60 to 80 percent of total drilling costs.
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