Sixty-year-old Wanda Davis retired from her computer consulting business in Boston and moved to Florida. There she
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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. Can you identify any flaws in the partners' reasoning regarding the income-sharing ratio?
b. How could an income-sharing agreement resolve this dispute?
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ISBN: 978-1285743615
26th edition
Authors: Carl S. Warren, James M. Reeve, Jonathan Duchac
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