You are a partner in a limited accounting firm and have been engaged by Floyd Barber and Andy Taylor to assist them in starting a new business. This trade will sell new and used bicycles to the general public. Andy has been productively selling bicycles out of his garage and believes that he requires a retail store to grow the business. Floyd owns a building that has been vacant for numerous years and has been looking for a business in which to invest. They are trying to choose if they should incorporate or form a partnership. They have asked you to create a short presentation for them that will describe the pros and cons of corporations and partnerships
Both plan to offer an equal amount of time to the business and share any profits or losses evenly. Your presentation should conclude with your suggestion of the entity that they should adopt based on the facts as presented to you. You should list three primary causes for your recommendation.
In addition to your presentation you should purpose a memorandum to them explaining the basis each of them will have in the partnership or corporation as well as the basis of the liabilities and assets to the partnership or corporation.
Andy will contribute the following:
Cash $10,000
Accounts Receivable $5,000
Inventory of Bicycles at cost $22,000 (sales value = $48,000)
Accounts Payable $2,000.
Floyd will contribute the following:
Cash $15,000
Land at cost $10,000 (market value $15,000)
Building
Cost $ 120,000 (market value $80,000)
Useful life 40 years
Residual Value $20,000
Accumulated depreciation to date $5,000 (2 years @ straight line method)
Mortgage payable $70,000, interest only payable monthly, balance due in 8 years.
