How to split profits fairly

ACC 405 Final Project Two Guidelines and Rubric

Overview

In the role of the accountant, decisions are not always made based on what the numbers show. There are often ethical considerations in addition to financial considerations. While the rules and guidelines of the Generally Accepted Accounting Principles (GAAP) are set firmly in place, it is up to the accountant to interpret them. For Final Project Two, you will create a memo to help three partners in a business fairly decide how to split the profits from the first year of their business. While one of the partners has infused the most cash into the business, the others have brought value in unique ways—including attracting customers and overseeing the day-to-day activities. The final product will be submitted in Module Seven. In this assignment, you will demonstrate your mastery of the following course competencies:

 ACC-405-01: Analyze economic activity of complex or unique business situations.

 ACC-405-03: Explore the impact of emerging domestic, global, and technological factors that could affect financial reporting.

Prompt

Compose a memo addressing the allocation of profits to three partners of a new business: Alan, Bob, and Carol. It is your responsibility to address the potential ways in which the first-year profits can be divided among these partners, including whether the partners should be taking a salary, how the partners’ capital accounts may be affected by various decisions, and the most ethical way that the profits could be divided. Your memo should answer the following prompt: A new business client comes to your office. There are three owners of the business. The three individuals, Alan, Bob, and Carol, are thinking about forming a partnership. Alan is only investing $1 million in cash. He will not have anything to do with the daily activities of the business. Bob has had some experience in the business and will be responsible for the day-to-day operations of the business. Carol has a great deal of experience and many contacts within the business. She will be responsible for attracting new clients. Neither Bob nor Carol are investing cash into the partnership. During the first year of operation, the partnership generated a profit of $150,000. None of the partners received distributions during the year.

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Specifically, the following critical elements must be addressed:

I. Allocation of Profits A. Explain how allocating the profits evenly between the partners would work. Consider the fairness to each of the partners in your response.

[ACC-405-03] B. What would be the value of each partner’s capital account at the end of the year, given that the profits were allocated evenly among the three?

Support your answer with quantitative data and an explanation of how you came to this conclusion. [ACC-405-01] C. Explain an alternative method of allocating the profits if 80% of the profits was given to the cash investor and the remaining amount was split

evenly between the other two partners. [ACC-405-03] D. What would be the value of each partner’s capital account at the end of the year, given this alternative allocation method? Support your

answer with quantitative data and an explanation of how you came to this conclusion. [ACC-405-01]

II. Payment of Salary A. Should the two partners who are working in the business receive a salary? Why or why not? Be sure to support your decision with research and

quantitative data. [ACC-405-03] B. If the two non-investors did receive a salary, how would their capital account be affected? How would this impact a potential future liquidation

or buyout? Be sure to thoroughly explain and support your answer. [ACC-405-03] C. Should the cash investor receive a higher share of the profits or other sharing options? Why or why not? Support your opinions with research

and quantitative data. [ACC-405-03] D. If the cash investor did receive a salary, how would his capital account be affected? How would this impact a potential future liquidation or

buyout? Be sure to thoroughly explain and support your answer. [ACC-405-01] E. How do the payment of salary and the allocation of profit affect entries and the financial bottom line? Be sure to support your explanation with

concrete examples. [ACC-405-01] F. How could the payment of salary and allocation of profit be a more effective method of splitting the company’s profits for the three partners?

Explain a scenario in which the three partners would all be compensated fairly, and support your answer with logical reasoning. [ACC-405-03] G. What would be the value of each partner’s capital account at the end of the year, given your proposed fair allocation method? Support your

answer with quantitative data and an explanation of how you came to this conclusion. [ACC-405-01]

Deliverable

Final Submission: Partnership Accounting Memo In Module Seven, you will submit your final project. It should be a complete, polished artifact containing all of the critical elements of the final product. This submission will be graded with the Final Project Two Rubric.

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Final Project Two Rubric

Guidelines for Submission: The memo should be about 2–3 pages in length and should use double spacing, 12-point Times New Roman font, one-inch margins, and citations in APA style.

Critical Elements Exemplary (100%) Proficient (85%) Needs Improvement (55%) Not Evident (0%) Value

Allocation of Profits: Allocating the Profits

[ACC-405-03]

Meets “Proficient” criteria and expertly balances brevity with detail

Explains a fair allocation of profits to each partner, and response is clear and free of errors

Explains a fair allocation of profits to each partner, but response is unclear or contains inaccuracies

Does not explain a fair allocation of profits to each partner

7.92

Allocation of Profits: Value of Capital Account

[ACC-405-01]

Meets “Proficient” criteria, demonstrates a complex grasp of capital accounts, and supports answer with strong qualitative data

Provides value of each partner’s capital account and supports answer with qualitative data

Provides value of each partner’s capital account but does not support answer with qualitative data

Does not provide value of each partner’s capital account

9.50

Allocation of Profits: Alternative Method

[ACC-405-03]

Meets “Proficient” criteria and illustrates a sophisticated explanation of alternative methods for allocating profits

Explains an alternative method for allocating profits

Explains an alternative method for allocating profits, but response contains errors or is illogical

Does not explain an alternative method for allocating profits

7.92

Allocation of Profits: Value of Capital Account

with Alternative Allocation Method

[ACC-405-03]

Meets “Proficient” criteria and provides keen insight into capital accounts given the alternative method

Calculates the value of each partner’s capital account given the alternative method

Calculates the value of each partner’s capital account but doesn’t consider the alternative method, or response contains errors or is illogical

Does not calculate the value of each partner’s capital account using the alternative method

7.92

Payment of Salary: Salary Distribution [ACC-405-03]

Meets “Proficient” criteria and demonstrates a sophisticated awareness of salary distributions

Determines whether or not the two partners should receive a salary and explains why or why not

Determines whether or not the two partners should receive a salary but does not explain why or why not

Does not determine whether or not the two partners should receive a salary

7.92

Payment of Salary: Non- Investor Capital Accounts

[ACC-405-03]

Meets “Proficient” criteria and makes cogent connections between salary and capital accounts

Considers if the non-investors received a salary, how their capital account would be affected; thoroughly explains and supports response

Considers if the non-investors received a salary, how their capital account would be affected, but does not explain or support response

Does not consider if the non- investors received a salary, how their capital account would be affected

7.92

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Critical Elements Exemplary (100%) Proficient (85%) Needs Improvement (55%) Not Evident (0%) Value

Payment of Salary: Cash Investor

[ACC-405-03]

Meets “Proficient” criteria and cites specific, relevant examples and data to establish a robust context for analysis

Determines why or why not the cash investor should receive a higher share of the profits and supports opinions with research and quantitative data

Determines why or why not the cash investor should receive a higher share of the profits but does not support response with research or quantitative data

Does not determine why or why not the cash investor should receive a higher share of the profits

7.92

Payment of Salary: Cash Investor Capital Account

[ACC-405-01]

Meets “Proficient” criteria and uses industry-specific language to establish expertise

Thoroughly explains how the cash investor’s capital account would be affected if the investor took a salary

Explains how the cash investor’s capital account would be affected if the investor took a salary, but response is not cohesive or contains errors

Does not explain how the cash investor’s capital account would be affected if the investor took a salary

9.50

Payment of Salary: Financial Bottom Line

[ACC-405-01]

Meets “Proficient” criteria and draws a connection between payment of salary and the bottom line of the company that demonstrates expertise

Explains how the payment of salary could impact the financial bottom line of the company and supports argument with examples

Explains how the payment of salary could impact the financial bottom line of the company but does not support argument with examples

Does not explain how the payment of salary could impact the financial bottom line of the company

9.50

Payment of Salary: Splitting the Company’s

Profits [ACC-405-03]

Meets “Proficient” criteria and demonstrates a sophisticated awareness of splitting company profits

Explains a scenario in which the payment of salary and allocation of profit could be a more effective method of splitting the company’s profits

Explains a scenario for the payment of salary and allocation of profit, but it is not more effective, or response contains errors or is illogical

Does not explain a scenario in which the payment of salary and allocation of profit could be a more effective method of splitting the company’s profits

7.92

Payment of Salary: Value of Each Partner’s Capital

Account [ACC-405-01]

Meets “Proficient” criteria and demonstrates a complex grasp of capital accounts

Accurately calculates the value of each partner’s capital account at the end of the year and supports answer with quantitative data and thorough explanation

Calculates the value of each partner’s capital account at the end of the year, but does not support answer with quantitative data or thorough explanation, or response contains errors or is inaccurate

Does not accurately calculate the value of each partner’s capital account at the end of the year

9.50

Articulation of Response Submission is free of errors related to citations, grammar, spelling, syntax, and organization and is presented in a professional and easy to read format

Submission has no major errors related to citations, grammar, spelling, syntax, or organization

Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas

Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas

6.56