(Note: This is a continuation of the Cookie Chronicle from Chapters 1 through 11.)
CCC12
Natalie's high school friend, Katy Peterson, has been operating a bakery for approximately
18 months. Because Natalie has been so successful operating Cookie Creations, Katy
would like to have Natalie become her partner. Katy believes that together they will create a
thriving cookie-making business. Natalie is quite happy with her current business set-up. Until
now, she had not considered joining forces with anyone.
From past meetings with Katy, Natalie has gathered the following information about Katy's
business and compared it to her own results. The current market values of the assets and liabilities
of both businesses are as follow.
The Baker's Nook Cookie Creations
Cash $ 1, 500 $12, 000
Accounts receivable 6, 000 800
Allowance for doubtful accounts (750) 0
Merchandise inventory 450 1, 200
Equipment 7, 500 1, 000
Bank loan payable 10, 000 0
All assets would be transferred into the partnership. The partnership would assume all of the liabilities
of the two proprietorships. The bank loan is due February 17, 2014.
Additional information:
• Katy operates her business from leased premises. She has just signed a lease for 12 months.
Monthly rent will be $1, 000. Katy's landlord has agreed to draw up a new lease agreement
that would be signed by both partners.
• Katy graduated from cooking school. She has no personal assets and a lot of student loans and
credit card debt. Natalie's personal assets consist of investments in personal U. S. Savings
Bonds. Natalie has no personal liabilities.
• Katy is reluctant to have a partnership agreement drawn up. She thinks it's a waste of both
time and money.As Katy and Natalie have been friends for a long time. Katy is confident that
any problems that arise can be easily resolved over a nice meal.
Natalie thinks that it may be a good idea to establish a partnership with Katy. She comes to
you with the following questions.
1. "Do I really need a formalized partnership agreement drawn up? What would be the point of
having one if Katy and I agree on all major decision? What type of information should the
partnership agreement contain?"
2. "I would like to have Katy contribute the same amount of capital as I am contributing. How
much additional cash, in addition to the amount in Katy's proprietorship, would Katy have to
borrow to invest in the partnership so that she and I have the same capital balance?"
3. "Katy has a lot of personal debt. Should this affect my decision about whether or not to go
forward with this business venture? Why or why not?"
4. "What other issues should I consider before I say yes or no to Katy?"
Instructions
(a) Answer Natalie's questions.
(b) Assume that Natalie and Katy go ahead and form a partnership called Cookie Creations and
More on November 1, 2013, and that Katy is able to borrow the additional cash she need to
contribute to the partnership. Prepare a balance sheet for the partnership on November 1.
Added (1). Accounting 1
См. статью: Continuing Cookie Chronicle/ Accounting?