Accounting (Text Only)
26th Edition
ISBN: 9781285743615
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Question
Chapter 12, Problem 12.6EX
a.
To determine
Income-sharing ratio
The ratio in which the income of
To explain: The flaws in the partners’ reasoning regarding the income sharing ratio.
b.
To determine
To explain: The manner in which the income-sharing agreement can resolve the dispute.
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Sixty-year-old Wanda Davis retired from her computer consulting business in Boston and moved to Florida. There she met 27-year-old Ava Jain, who had just graduated from Eldon Community College with an associate degree in computer science. Wanda and Ava formed a partnership called D&J Computer Consultants. Wanda contributed $50,000 for startup costs and devoted one-half time to the business. Ava devoted full time to the business. The monthly drawings were $2,500 for Wanda and $5,000 for Ava. At the end of the first year of operations, the two partners disagreed on the division of net income. Wanda reasoned that the division should be equal. Although she devoted only one-half time to the business, she contributed all of the startup funds. Ava reasoned that the income-sharing ratio should be 2:1 in her favor because she devoted full time to the business and her monthly drawings were twice those of Wanda.a. What flaws can you identify in the partners’ reasoning regarding the…
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While James Craig and his former classmate Paul Dolittle both studied accounting at school, they ended up pursuing
careers in professional cake decorating. Their company, Good to Eat (GTE), specializes in custom-sculpted cakes for
weddings, birthdays, and other celebrations. James and Paul formed the business at the beginning of 2023, and each
contributed $80,000 in exchange for a 50 percent ownership interest. GTE also borrowed $320,000 from a local
bank. Both James and Paul had to personally guarantee the loan. Both owners provide significant services for the
business. The following information pertains to GTE's 2023 activities:
• GTE uses the cash method of accounting (for both book and tax purposes) and reports income on a calendar-year
basis.
• GTE received $600,000 of sales revenue and reported $280,000 of cost of goods sold (it did not have any ending
inventory).
• GTE paid $45,000 compensation to James, $45,000 compensation to Paul, and $55,000 of…
Chapter 12 Solutions
Accounting (Text Only)
Ch. 12 - Prob. 1DQCh. 12 - Prob. 2DQCh. 12 - Prob. 3DQCh. 12 - Prob. 4DQCh. 12 - Prob. 5DQCh. 12 - Prob. 6DQCh. 12 - Prob. 7DQCh. 12 - Prob. 8DQCh. 12 - Prob. 9DQCh. 12 - Prob. 10DQ
Ch. 12 - Prob. 12.1APECh. 12 - Prob. 12.1BPECh. 12 - Prob. 12.2APECh. 12 - Prob. 12.2BPECh. 12 - Prob. 12.3APECh. 12 - Prob. 12.3BPECh. 12 - Prob. 12.4APECh. 12 - Prob. 12.4BPECh. 12 - Prob. 12.5APECh. 12 - Prob. 12.5BPECh. 12 - Prob. 12.6APECh. 12 - Prob. 12.6BPECh. 12 - Prob. 12.7APECh. 12 - Prob. 12.7BPECh. 12 - Prob. 12.1EXCh. 12 - Prob. 12.2EXCh. 12 - Prob. 12.3EXCh. 12 - Prob. 12.4EXCh. 12 - Prob. 12.5EXCh. 12 - Prob. 12.6EXCh. 12 - Prob. 12.7EXCh. 12 - Prob. 12.8EXCh. 12 - Prob. 12.9EXCh. 12 - Prob. 12.10EXCh. 12 - Prob. 12.11EXCh. 12 - Prob. 12.12EXCh. 12 - Prob. 12.13EXCh. 12 - Prob. 12.14EXCh. 12 - Prob. 12.15EXCh. 12 - Prob. 12.16EXCh. 12 - Prob. 12.17EXCh. 12 - Statement of members equity, admitting new member...Ch. 12 - Distribution of cash upon liquidation Hewitt and...Ch. 12 - Distribution of cash upon liquidation David Oliver...Ch. 12 - Prob. 12.21EXCh. 12 - Prob. 12.22EXCh. 12 - Liquidating partnershipscapital deficiency...Ch. 12 - Prob. 12.24EXCh. 12 - Prob. 12.25EXCh. 12 - Prob. 12.26EXCh. 12 - Prob. 12.27EXCh. 12 - Prob. 12.28EXCh. 12 - Prob. 12.1APRCh. 12 - Prob. 12.2APRCh. 12 - Prob. 12.3APRCh. 12 - Prob. 12.4APRCh. 12 - Prob. 12.5APRCh. 12 - Prob. 12.6APRCh. 12 - Prob. 12.1BPRCh. 12 - Prob. 12.2BPRCh. 12 - Prob. 12.3BPRCh. 12 - Prob. 12.4BPRCh. 12 - Prob. 12.5BPRCh. 12 - Statement of partnership liquidation On August 3,...Ch. 12 - Prob. 12.1CPCh. 12 - Prob. 12.2CPCh. 12 - Revenue per employee The following table shows key...Ch. 12 - Prob. 12.4CP
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