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Lewis, Clark, and Beal entered into a written agreement to form a partnership. The agreement required that the partners make the following capital contributions: Lewis, $40,000, Clark, $30,000, and Beal, $10,000. It was also agreed that in the event the partnership experienced losses in excess of available capital, Beal would contribute additional capital to the extent of the losses. The partnership agreement was otherwise silent about division of profits and losses. Which of the following statements is correct?
Suggested Answer: C
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Choice 'c' is correct. A shortcut computation for operating leverage is the ratio of fixed costs to variable costs. If total cost is $100,000 and variable cost is 40% of total costs (or $40,000), then fixed costs must be 60% (or $60,000). Operating leverage is then calculated as follows:
$60,000/$40,000 = 1.5
Choice 'a' is incorrect. .4 is obtained by dividing $100,000 into the variable cost of $40,000.
Choice 'b' is incorrect. .6 is obtained by dividing total costs into fixed costs.
Choice 'd' is incorrect. 2.5 is obtained by dividing total costs by variable costs.
31 comments · newest first
YA
Yasuko
10 months ago
C seems right, different contributions mean different profit shares.
YO
Yong
11 months ago
Wait, so Beal has to cover losses but not profits? Sounds weird.
CE
Cecil
11 months ago
Definitely not B, that makes no sense.
KY
Kyoko
11 months ago
I think they should split profits equally since it’s not specified.
MA
Malcom
11 months ago
Profits usually follow capital contributions, right?
MO
Mozelle
12 months ago
I recall that Beal's obligation to contribute more capital could influence how profits and losses are shared, so maybe option D is the right choice.
JO
Jose
12 months ago
I feel like option C might be correct because the different capital contributions could affect how losses are allocated, but I'm not entirely confident.
BU
Buddy
12 months ago
I think we practiced a similar question where profits were divided equally, but that was when the agreement didn't specify anything about contributions.
ME
Merri
1 year ago
I remember discussing how profits are typically divided based on capital contributions unless stated otherwise, but I'm not sure if that applies here since the agreement is silent on profits.
MA
Marva
1 year ago
I'm not totally sure about this one. The part about Beal contributing additional capital in the event of losses is throwing me off a bit. I'll have to think through the implications of that before selecting an answer.
RE
Reynalda
1 year ago
Okay, I think I've got this. The key is that the partnership agreement is silent on the division of profits and losses, so that means they should be divided in proportion to the capital contributions, per option A.
TE
Tenesha
1 year ago
Hmm, I'm a bit confused about how the profits and losses should be allocated given the different capital contributions. I'll need to carefully review the options to see which one best fits the information provided.
GE
Geraldo
1 year ago
This seems like a straightforward partnership question. I'll focus on the key details - the capital contributions and the agreement about Beal contributing additional capital in the event of losses.
IL
Ilda
1 year ago
This seems pretty straightforward - the best tool to use is definitely the Page Inbox to read and respond to messages and posts from potential customers.
MI
Micaela
1 year ago
This question seems straightforward, but I want to make sure I'm not missing any important details. I'll carefully consider each option.
BE
Bernardine
1 year ago
I'm going with C. The agreement is silent on the division of profits and losses, so it must be different from the capital contributions. *Chuckles* Gotta keep 'em guessing, you know?
LA
Lacey
1 year ago
C) Losses will be allocated in a manner different from the allocation of profits because the partners contributed different amounts of capital.
ME
Meaghan
1 year ago
B) Profits are to be divided equally among the partners.
SH
Shantell
1 year ago
A) Profits are to be divided among the partners in proportion to their relative capital contributions.
RO
Royce
1 year ago
Oh, I don't like the sound of that! I hope we don't have any losses, or I might be on the hook for more than I bargained for. *Laughs nervously*
CA
Carissa
1 year ago
Let's make sure to communicate openly about our finances.
NY
Nydia
1 year ago
I think we should discuss a plan in case we do face losses.
KA
Karina
1 year ago
I agree, we need to be careful with our decisions.
JA
Jamal
1 year ago
Don't worry, we'll work hard to avoid any losses.
DE
Desiree
1 year ago
I agree, that seems like the most logical approach. But what about Beal's obligation to contribute additional capital if we have losses? That's an interesting twist.
TA
Tanja
1 year ago
D) Beal's obligation to contribute additional capital would have an effect on the allocation of profit or loss to Beal.
LA
Lang
1 year ago
A) Profits are to be divided among the partners in proportion to their relative capital contributions.
LO
Lorenza
1 year ago
Hmm, I'm pretty sure the answer is A. Profits should be divided based on our capital contributions.
MI
Michell
2 years ago
But what about Beal's obligation to contribute more capital in case of losses?
TA
Tatum
2 years ago
I agree with Erick, it's only fair that way.
ER
Erick
2 years ago
I think profits should be divided based on capital contributions.