a. Based on financial statements, what is the value of each brother's equity in the company? b.
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a. Based on financial statements, what is the value of each brother's equity in the company?
b. Using the cash account data, prepare a statement showing the receipts and disbursement of cash during the period from the formation of the business until March 31, 2006.
c. Prepare statements of cash flows using the direct and indirect methods from the formation of the business until March 31, 2006.
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Marion Boats, Inc. Fred Cunningham was a fire truck salesman for many years, while Bill, his brother, worked as a book salesman for a major publishing house. Although they had done fairly well financially, they wanted to "be their own bosses," so they decided to go into business together. They agreed that selling small fishing and recreational boats would be a good line for them to go into as both had been interested in fishing and boating for many years. Also, the small town Marion, Mississippi, where they lived, did not have any boat dealerships. The nearest dealer was some 95 miles away. After some searching, they chose a suitable site for their proposed operation. It was situated at a popular local dock. A dilapidated building which had been condemned by the local authorities stood on the site. At this point in time, the brothers decided to incorporate the business. The services of a lawyer were obtained to draw up the legal papers and to handle all aspects of the execution of the incorporation. The fee for this service was $800, and each of the brothers paid half of it. On October 1, 2005, Fred purchased 1,800 shares of the company's stock for $72,000, and Bill purchased 500 shares for $20,000. The payment for legal services was considered part of these investments, so the actual cash received by the new company was $91,200. Further purchases of the company's shares could be made only at the prevailing book value per share at the time of the purchase and only if both parties agreed to the transaction. If either brother wished at any time to sell his shares back to the company, this transaction would also be conducted at the prevailing book value of the shares. The brothers also agreed that they should each receive salaries of $24,000 per year at all times during which they were engaged in the company's business on a full-time basis. Both knew this amount was less than they could earn in other jobs, but they realized a small salary was needed at this time to ensure that the dealership could pay its bills on time. On November 1, 2005, with the aid of a $40,000 bank loan and $32,000 of the company's money, Fred purchased the property which had been selected. The same day, he left his job to devote his full attention to the new enterprise. First, Fred arranged to have the old building demolished. A cursory examination revealed there was nothing of any significance that could be salvaged, except for some building stone. Mr. Marion Boats, Inc. Fred Cunningham was a fire truck salesman for many years, while Bill, his brother, worked as a book salesman for a major publishing house. Although they had done fairly well financially, they wanted to "be their own bosses," so they decided to go into business together. They agreed that selling small fishing and recreational boats would be a good line for them to go into as both had been interested in fishing and boating for many years. Also, the small town Marion, Mississippi, where they lived, did not have any boat dealerships. The nearest dealer was some 95 miles away. After some searching, they chose a suitable site for their proposed operation. It was situated at a popular local dock. A dilapidated building which had been condemned by the local authorities stood on the site. At this point in time, the brothers decided to incorporate the business. The services of a lawyer were obtained to draw up the legal papers and to handle all aspects of the execution of the incorporation. The fee for this service was $800, and each of the brothers paid half of it. On October 1, 2005, Fred purchased 1,800 shares of the company's stock for $72,000, and Bill purchased 500 shares for $20,000. The payment for legal services was considered part of these investments, so the actual cash received by the new company was $91,200. Further purchases of the company's shares could be made only at the prevailing book value per share at the time of the purchase and only if both parties agreed to the transaction. If either brother wished at any time to sell his shares back to the company, this transaction would also be conducted at the prevailing book value of the shares. The brothers also agreed that they should each receive salaries of $24,000 per year at all times during which they were engaged in the company's business on a full-time basis. Both knew this amount was less than they could earn in other jobs, but they realized a small salary was needed at this time to ensure that the dealership could pay its bills on time. On November 1, 2005, with the aid of a $40,000 bank loan and $32,000 of the company's money, Fred purchased the property which had been selected. The same day, he left his job to devote his full attention to the new enterprise. First, Fred arranged to have the old building demolished. A cursory examination revealed there was nothing of any significance that could be salvaged, except for some building stone. Mr.
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Related Book For
Discrete Mathematics and Its Applications
ISBN: 978-0073383095
7th edition
Authors: Kenneth H. Rosen
Posted Date:
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