Write a memo explaining the advantages and disadvantages of a partnership and advice on the issues that should be settled in advance.

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Chapter 19, Problem 1MYW

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Write a memo explaining the advantages and disadvantages of a partnership and advice on the issues that should be settled in advance.

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A client of yours is seeking your help in understanding a number of issues involving various aspects of a partnership. The business under consideration is a manufacturer of custom fabricated steel building components such as fire escapes, stairways and landings, and racking systems. Provide a response to each of the questions your client has.1. One of the potential partners wants to allocate partnership profits by including interest on invested capital and bonuses, as a percentage of net income after bonuses. Why would interest on capital be important given this type of business, and what is the best way to measure capital?2. Determining a bonus on net income after the bonus seems counterintuitive. Why not just base the bonus on net income?3. Are drawings and capital the same thing? Why is it necessary to make a distinction?4. If a partner is legally considered an employee of the partnership and receives a regular paycheck and an annual W-2 statement, is this the same thing as the…