AICPA CPA-Business Exam - Topic 2 Question 90 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 90
Topic #: 2

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?

AProfits are to be divided among the partners in proportion to their relative capital contributions.

BProfits are to be divided equally among the partners.

CLosses will be allocated in a manner different from the allocation of profits because the partners contributed different amounts of capital.

DBeal's obligation to contribute additional capital would have an effect on the allocation of profit or loss to Beal.

Show Suggested Answer

Suggested Answer: C

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.

by Filiberto at Jun 19, 2024, 06:33 AM

Limited Time Offer

25%

Off

Get Premium CPA-Business Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel

Yasuko

4 months ago

C seems right, different contributions mean different profit shares.

upvoted 0 times

...

Yong

5 months ago

Wait, so Beal has to cover losses but not profits? Sounds weird.

upvoted 0 times

...

Cecil

5 months ago

Definitely not B, that makes no sense.

upvoted 0 times

...

Kyoko

5 months ago

I think they should split profits equally since it’s not specified.

upvoted 0 times

...

Malcom

5 months ago

Profits usually follow capital contributions, right?

upvoted 0 times

...

Mozelle

6 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.

upvoted 0 times

...

Jose

6 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.

upvoted 0 times

...

Buddy

6 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.

upvoted 0 times

...

Merri

6 months 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.

upvoted 0 times

...

Marva

6 months 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.

upvoted 0 times

...

Reynalda

6 months 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.

upvoted 0 times

...

Tenesha

6 months 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.

upvoted 0 times

...

Geraldo

6 months 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.

upvoted 0 times

...

Ilda

6 months 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.

upvoted 0 times

...

Micaela

6 months ago

This question seems straightforward, but I want to make sure I'm not missing any important details. I'll carefully consider each option.

upvoted 0 times

...

Bernardine

11 months 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?

upvoted 0 times

Lacey

10 months ago

C) Losses will be allocated in a manner different from the allocation of profits because the partners contributed different amounts of capital.

upvoted 0 times

...

Meaghan

11 months ago

B) Profits are to be divided equally among the partners.

upvoted 0 times

...

Shantell

11 months ago

A) Profits are to be divided among the partners in proportion to their relative capital contributions.

upvoted 0 times

...

Royce

12 months 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*

upvoted 0 times

Carissa

10 months ago

Let's make sure to communicate openly about our finances.

upvoted 0 times

...

Nydia

10 months ago

I think we should discuss a plan in case we do face losses.

upvoted 0 times

...

Karina

11 months ago

I agree, we need to be careful with our decisions.

upvoted 0 times

...

Jamal

11 months ago

Don't worry, we'll work hard to avoid any losses.

upvoted 0 times

...

Desiree

12 months 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.

upvoted 0 times