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AICPA CPA-Business Exam Prep
CPA Business Environment and Concepts (Page 6 )

Updated On: 18-Aug-2026
Page 6 of 107
PDF with 530 Questions

Which of the following statements is correct regarding the division of profits in a general partnership when the written partnership agreement only provides that losses be divided equally among the partners?
Profits are to be divided:

  1. Based on the partners' ratio of contribution to the partnership.
  2. Based on the partners' participation in day-to-day management.
  3. Equally among the partners.
  4. Proportionately among the partners.

Answer(s): C

Explanation:

Choice "c" is correct.
Rule: When the partnership agreement is silent as to how profits are to be divided, they are divided equally. Note also that when the agreement is silent, losses are treated similar to profits, there is no reverse rule that profits are treated like losses.
Choices "a", "b", and "d" are incorrect, per the above rule.



Downs, Frey, and Vick formed the DFV general partnership to act as manufacturers' representatives. The partners agreed Downs would receive 40% of any partnership profits and Frey and Vick would each receive 30% of such profits. It was also agreed that the partnership would not terminate for five years.
After the fourth year, the partners agreed to terminate the partnership. At that time, the partners' capital accounts were as follows: Downs, $20,000; Frey, $15,000; and Vick, $10,000. There also were undistributed losses of $30,000.
Which of the following statements about the form of the DFV partnership agreement is correct?

  1. It must be in writing because the partnership was to last for longer than one year.
  2. It must be in writing because partnership profits would not be equally divided.
  3. It could be oral because the partners had explicitly agreed to do business together.
  4. It could be oral because the partnership did not deal in real estate.

Answer(s): A

Explanation:

Choice "a" is correct. Under the statute of frauds, an agreement, which by its terms cannot be performed within a year, must be evidenced by a writing containing the material terms and signed by the parties to be charged. Absent a writing, the partnership will be treated as a partnership at will. Choice "b" is incorrect. There is no requirement that partnership agreements be in writing merely because profits will be divided unequally.
Choice "c" is incorrect. The statute of frauds requires contracts that cannot by their terms be performed within one year to be evidenced by a writing containing the material terms and signed by the parties to be charged.
Choice "d" is incorrect.
Whether or not a partnership is to deal in real estate is irrelevant to whether the partnership agreement must be in writing.



Downs, Frey, and Vick formed the DFV general partnership to act as manufacturers' representatives. The partners agreed Downs would receive 40% of any partnership profits and Frey and Vick would each receive 30% of such profits. It was also agreed that the partnership would not terminate for five years.
After the fourth year, the partners agreed to terminate the partnership. At that time, the partners' capital accounts were as follows: Downs, $20,000; Frey, $15,000; and Vick, $10,000. There also were undistributed losses of $30,000.
Vick's share of the undistributed losses will be:

  1. $0
  2. $1,000
  3. $9,000
  4. $10,000

Answer(s): C

Explanation:

Rule: Where the partnership agreement is silent, losses are shared in the same proportion as profits. Choice "c" is correct. Vick was entitled to 30% of the profits and so will be responsible for 30% of the undistributed $30,000 loss, or $9,000.
Choices "a", "b", and "d" are incorrect, per the above rule.



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?

  1. Profits are to be divided among the partners in proportion to their relative capital contributions.
  2. Profits are to be divided equally among the partners.
  3. Losses will be allocated in a manner different from the allocation of profits because the partners contributed different amounts of capital.
  4. Beal's obligation to contribute additional capital would have an effect on the allocation of profit or loss to Beal.

Answer(s): B

Explanation:

Choice "b" is correct.
Rule: Regardless of the contributions and obligations of the partners, unless the partnership agreement specifically states otherwise, all partners are entitled to an equal share of the profits. Choices "a", "c", and "d" are incorrect, per the above rule.



Gillie, Taft, and Dall are partners in an architectural firm. The partnership agreement is silent about the payment of salaries and the division of profits and losses. Gillie works full-time in the firm, and Taft and Dall each work half time. Taft invested $120,000 in the firm, and Gillie and Dall invested $60,000 each. Dall is responsible for bringing in 50% of the business, and Gillie and Taft 25% each.
How should profits of $120,000 for the year be divided?

  1. Gillie $60,000, Taft $30,000, Dall $30,000.
  2. Gillie $40,000, Taft $40,000, Dall $40,000.
  3. Gillie $30,000, Taft $60,000, Dall $30,000.
  4. Gillie $30,000, Taft $30,000, Dall $60,000.

Answer(s): B

Explanation:

Choice "b" is correct. $40,000 - $40,000 - $40,000 (equally). Rule: In the absence of an agreement to the contrary, the profits will be shared equally regardless of investment of money or time.
Choices "a", "c", and "d" are incorrect, per the above rule.



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