Financial Accounting
15th Edition
ISBN: 9781337272124
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 12, Problem 6E
a.
To determine
Explain the flaws in the partners’ reasoning regarding the income sharing ratio.
b.
To determine
Explain the manner in which the income-sharing agreement can resolve the dispute.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
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…
Scenario: Hart Nance and Jason Symington operate gift boutiques in shopping malls. The partners split profits and losses equally, and each takes an annual drawing of $80,000. To even out
the workload, Nance travels around the country inspecting their properties. Symington manages the business and serves as the accountant. From time to time, they use small amounts of
store merchandise for personal use. In preparing for his daughter's wedding, Symington took inventory that cost $10,000. He recorded the transactions as follows:
Debit
Credit
Cost of Goods Sold $10,000
Inventory
$10,000
Respond to the following questions and, if appropriate, include personal experience as part of your answers.
• How do you feel Symington should have recorded these transactions? Why?
• What are the ethical implications of Symington's actions?
Required information
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
Financial Accounting
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. 1PEACh. 12 - Prob. 1PEBCh. 12 - Prob. 2PEACh. 12 - Prob. 2PEBCh. 12 - Prob. 3PEACh. 12 - Prob. 3PEBCh. 12 - Prob. 4PEACh. 12 - Prob. 4PEBCh. 12 - Prob. 5PEACh. 12 - Liquidating partnerships Prior to liquidating...Ch. 12 - Prob. 6PEACh. 12 - Prob. 6PEBCh. 12 - Revenue per employee Niles and Cohen, CPAs earned...Ch. 12 - Prob. 7PEBCh. 12 - Prob. 1ECh. 12 - Prob. 2ECh. 12 - Prob. 3ECh. 12 - Prob. 4ECh. 12 - Prob. 5ECh. 12 - Prob. 6ECh. 12 - Prob. 7ECh. 12 - Prob. 8ECh. 12 - Prob. 9ECh. 12 - Prob. 10ECh. 12 - Prob. 11ECh. 12 - Prob. 12ECh. 12 - Prob. 13ECh. 12 - Prob. 14ECh. 12 - Prob. 15ECh. 12 - Prob. 16ECh. 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 - Liquidating partnershipscapital deficiency Lewis,...Ch. 12 - Prob. 21ECh. 12 - Prob. 22ECh. 12 - Statement of partnership liquidation After closing...Ch. 12 - Prob. 24ECh. 12 - Prob. 25ECh. 12 - Revenue per professional staff The accounting firm...Ch. 12 - Prob. 27ECh. 12 - Prob. 1PACh. 12 - Prob. 2PACh. 12 - Prob. 3PACh. 12 - Prob. 4PACh. 12 - Statement of partnership liquidation After the...Ch. 12 - Prob. 6PACh. 12 - Prob. 1PBCh. 12 - Prob. 2PBCh. 12 - Prob. 3PBCh. 12 - Prob. 4PBCh. 12 - Statement of partnership liquidation After the...Ch. 12 - On August 3, the firm of Chapelle, Rock, and Pryor...Ch. 12 - Prob. 1CPCh. 12 - Prob. 3CPCh. 12 - Prob. 4CP
Knowledge Booster
Similar questions
- Required Information 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 $140,000 in exchange for a 50 percent ownership Interest. GTE also borrowed $560,000 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 $900,000 of sales revenue and reported $420,000 of cost of goods sold (it did not have any ending Inventory). • GTE paid $75,000 compensation to James, $75,000 compensation to Paul, and $85,000 of…arrow_forwardcan you decide which proposal is better using the information and proposal options from the picture for my homework pleasearrow_forwardSkip to question 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 $140,000 in exchange for a 50 percent ownership interest. GTE also borrowed $560,000 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 $900,000 of sales revenue and reported $420,000 of cost of goods sold (it did not have any ending inventory). GTE paid $75,000 compensation to James, $75,000 compensation to Paul, and $85,000 of compensation to…arrow_forward
- Review the following scenario: Scenario: Hart Nance and Jason Symington operate gift boutiques in shopping malls. The partners split profits and losses equally, and each takes an annual drawing of $80,000. To even out the workload, Nance travels around the country inspecting their properties. Symington manages the business and serves as the accountant. From time to time, they use small amounts of store merchandise for personal use. In preparing for his daughter's wedding, Symington took inventory that cost $10,000. He recorded the transactions as follows: Debit Credit Cost of Goods Sold $10,000 Inventory $10,000 Respond to the following questions and, if appropriate, include personal experience as part of your answers. How do you feel Symington should have recorded these transactions? Why? What are the ethical implications of Symington's actions?arrow_forwardProblem 8-40 (LO 8-4) Mabel, Loretta, and Margaret are equal partners in a local restaurant. The restaurant reports the following items for the current year. Revenue Business expenses Investment expenses $ 500,000 260,000 129,000 114,000 Short-term capital gains Short-term capital losses (159,900) Each partner receives a Schedule K-1 with one-third of the preceding items reported to her. Required: How must each individual report these results on her Form 1040? Note: Do not round any division. Round your final answer to the nearest whole dollar value. Negative amounts should be indicated by a minus sign. Schedule A Schedule D Schedule E Amountarrow_forwardO Page view A R You are employed as the office manager at Clover Point Pediatrics. Your job requires you to take on many responsibilities. One of these is to arrange for the annual employee party. This year, you have been given permission to rent a banquet room at a local hotel, hire a caterer, and hire a disc jockey for entertainment. There are 23 employees and each will be bringing one guest (46 total). Answer the following (all pricing includes tax and tip): 10. The caterer is charging $29.95 per person for a sit-down dinner. What will be the total cost for food? 11. Beer and wine will be served at a cost of $12.00 per person. What is the total cost for beverages? 12. The entertainment costs $100.00 an hour, and entertainment will be held from 7:00 p.m. to midnight. What will this cost? The banquet rental is $1,200.00 for the evening and this includes all set ups. What will the entire evening cost (food, beverages, entertainment, and rental)? 13.arrow_forward
- Yogesharrow_forwardThe students in ACCT 450 decide to form apartnership in order to start a business that researchesmergers and acquisitions and sells their analysis toinvestors via a monthly report . Further , they decide*to split the responsibilities of the partnership into*three different areas as follows :". One third of the students invest the majority ofthe capital needed to get the business started ,but do not want to be involved on the daily*operations .One third of the students have extensive*experience in analyzing mergers andacquisitions and plan to perform the majority*of the daily work..The remaining third of the students believe*they provide the most value to the newpartnership by marketing the monthly report totheir investment contacts .RequiredWrite a memo to the other members of ACCT 450proposing two different ways the partnership canfairly allocate the profits of the partnership among*the three different groups of partners identified.above . Feel free to be creative , but please make…arrow_forwardRequired information Important Note! Before you start working on this problem, watch the Hint video. This video shows you exactly how to work this problem. [The following information applies to the questions displayed below.] ** Ramer and Knox began a partnership by investing $68,000 and $102,000, respectively. During its first year, the partnership earned $205,000. Prepare calculations showing how the $205,000 income is allocated under each separate plan for sharing Income and loss. Important Notel Before you start working on this problem, watch the Hint video. This video shows you exactly how to work this problem. 1. The partners did not agree on a plan, and therefore share Income equally Ramer Knox Show Transcribed Textarrow_forward
- Can I please get help with this practice question? 6.1 Ries, Bax, and Thomas invested $48,000, $64,000, and $72,000, respectively, in a partnership. During its first calendar year, the firm earned $416,100. Required: Prepare the entry to close the firm’s Income Summary account as of its December 31 year-end and to allocate the $416,100 net income under each of the following separate assumptions. 1. The partners did not agree on a plan, and therefore share income equally. Record the entry to close the income summary account assuming the partners did not agree on a plan, and therefore share income equally. Note: Enter debits before credits. Date General Journal Debit Credit December 31arrow_forwardRefer to the AccuTax Incorporated exhibit One of the partners is planning to retire at the end of the year. May Higgins, the sole remaining partner, plans to add a manager at an annual salary of $90,360. She expects the manager to work, on average, 45 hours a week for 45 weeks per year. She plans to change the required staff time for each hour spent to complete a tax return to the following: Business Return Complex Individual Return 0.07 hour Simple Individual Return Partner Manager 0.4 hour 0.1 hour 0.13 hour Senior consultant Consultant 0.5 hour 0.40 hour 0.40 hour 0.2 hour 0.8 hour The manager is salaried and earns no overtime pay. Senior consultants are salaried but receive time and a half for any overtime worked. The firm plans to keep all the senior consultants and adjust the number of consultants as needed including employing part- time consultants, who also are paid on an hourly basis. Higgins has also decided to have five supporting staff at $46,000 each. All other operating…arrow_forwardFluff Inc., Year 20Y11 You have decided that this university life is not for you. Instead, you have decided to go into the business of selling Fluffs. You decide to operate the business as a corporation, Fluff, Inc. On January 1, 20Y1 you begin with $30,000 cash; $20,000 of the money is yours and $10,000 is borrowed from your Uncle Mike. For the $20,000 of yours, you issue yourself 100 shares of common stock. For the $10,000 borrowed from your uncle, you sign a note agreeing to pay back that amount on December 31, 20Y4 and you will pay interest at 10% at the end of each year. On January 1, 20Y1, you bought 8 Fluffs for $3,000 each. During the year you sold 5 Fluffs for $7,000 each. You also paid a security deposit of $2,000, advertising expense of $4,200 and 12 months' rent of $10,800. In addition to the cash you invested on January 1st, on August 1st you also invest a piece of land that you own into the business that is worth $40,000 in exchange for 200 more shares of stock. You pay…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning
Excel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage Learning
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
PFIN (with PFIN Online, 1 term (6 months) Printed...FinanceISBN:9781337117005Author:Randall Billingsley, Lawrence J. Gitman, Michael D. JoehnkPublisher:Cengage LearningBusiness Its Legal Ethical & Global EnvironmentAccountingISBN:9781305224414Author:JENNINGSPublisher:Cengage
Financial Accounting: The Impact on Decision Make...
Accounting
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Cengage Learning
Excel Applications for Accounting Principles
Accounting
ISBN:9781111581565
Author:Gaylord N. Smith
Publisher:Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College
PFIN (with PFIN Online, 1 term (6 months) Printed...
Finance
ISBN:9781337117005
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Cengage Learning
Business Its Legal Ethical & Global Environment
Accounting
ISBN:9781305224414
Author:JENNINGS
Publisher:Cengage