Shawn Bates was working to establish a business enterprise with four of his wealthy friends

Problem 8-23 (Different forms of business organization) Shawn Bates was working to establish a business enterprise with four of his wealthy friends. Each of the five individuals would receive a 20 percent ownership interest in the company. A primary goal of establishing the enterprise was to minimize the amount of income taxes paid. Assume that the five investors are taxed at the rate of 15% on dividend income and 30% on all other in-come and that the corporate tax rate is 30 percent. Also assume that the new company is expected to earn $ 400,000 of cash income before taxes during its first year of operation. All earnings are expected to be immediately distributed to the owners. Required Calculate the amount of after- tax cash flow available to each investor if the business is established as a partnership versus a corporation. Write a memo explaining the advantages and disadvantages of these two forms of business organization. Explain why a limited liability company may be a better choice than either a partnership or a corporation.

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(Dividing the Bill) Assume that you and your friends go to a restaurant as a group

Group Exercise 8-35 (Dividing the Bill) Assume that you and your friends go to a restaurant as a group. At the end of the meal, you must decide how the bill for the group should be shared. One alternative is to figure out the cost of what each individual consumed and divide up the bill accordingly. Another is to split the bill equally among the individuals.

Required:
1. Which system for dividing the bill is more equitable? Which system is easier to use? How does this issue relate to activity based costing?
2. Should ABC always identify the costs? Explain when and when not.

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