Charlie and Mia Have Started Selling T-Shirts with Iron-On Decals

question 66

Essay

Charlie and Mia have started selling T-shirts with iron-on decals and lettering. They have no formal written agreement and simply decided to split all profits equally. Each has contributed $1,000 to the enterprise, and since Mia will be doing all of the work, Charlie agrees that he will be responsible for 75 percent of any losses. Charlie does call in to make day-to-day decisions, but Mia purchases the shirts, decals, and lettering, operates the press, and runs the store. Charlie stays home and smokes cigars and drinks scotch. Alan purchases one of their shirts and, after wearing it all day, discovers that the dye has run and his upper body is now blue. After bathing numerous times, he finds that the blue dye will not wash off. Alan sues and is awarded $100,000 in damages. Charlie claims that there was no real business entity formed and that he should not be liable. How will the court decide?

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Definitions:

Exchange Rates

The rate at which one currency can be exchanged for another, influencing international trade and economics.

Foreign Subsidiary

A company owned or controlled by another company (parent) located in a different country, conducting business operations in the subsidiary's local market.

Functional Currency

This represents the primary currency of the economic environment in which a business operates, determining the currency in which its financial statements are presented.

Ending Inventory

The total value of all the goods available for sale at the end of an accounting period, calculated before the start of the next period.