PaulCo, DavidCo, and Sean Form a Partnership with Cash Contributions

question 10

True/False

PaulCo, DavidCo, and Sean form a partnership with cash contributions of $80,000, $50,000 and $30,000, respectively, and agree to share profits and losses in the ratio of their original cash contributions. PaulCo uses a January 31 fiscal year-end, while DavidCo and Sean use a November 30 and December 31 year-end, respectively. The partnership must use the least aggregate deferral method to determine its year end.

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Definitions:

Total Contribution Margin

The difference between sales revenue and variable costs of production, indicating how much revenue contributes toward covering fixed costs and generating profit.

Pretax Income

The income a company generates before income taxes are deducted, also known as earnings before tax (EBT).

Variable Costing

An accounting method that only allocates variable costs to production, treating fixed costs as period costs that are charged to expense as they are incurred.

Fixed Overhead Costs

Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance, and must be paid regardless of the business activity level.