A Partnership with Unlimited Possibilities: A Case of Allocation of Partnership Income and Common Costs

Abstract

Most cases are written for upper- and graduate-level accounting classes, however, this case was written to be used in introductory accounting classes. It involves a recent college graduate who, while eating lunch, is asked by a potential client about the benefits of entering into a partnership. Three issues must be addressed: are the risks of entering the partnership worth the increase in income; is the partnership allocation formula fair to the potential partner; and should the common costs be allocated differently? Students need to use the accounting information provided and advise the client about making important business decisions. The student has to write a memo explaining the benefits and risks of joining the partnership. The facts of the case add a real-world element to this discussion.