One of the members of the critique group, either from group 2 or 3 should ask a question to the presenting group 1. One of the presenting group member should answer the question. The other members of the critique groups should also ask questions to the presenting group until all have a chance to ask questions at least once which the presenting group members should answer all the questions posted. Thanks
With the exit of two of the partners, and knowing the fact that the largest expense based on the income statement was owner's salary, what can Mrs. Rayburn do with this information, if she were to continue her business as a sole proprietorship?
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Addressing Mr. Dy's question: If she decides to continue her business as a sole proprietorship, then monthly payment to partners will not be accounted for anymore, since she is solely the owner and manager of the business. Although partnership shares may decrease expenses, she still needs to take into account that she could lose her personal assets if the business continues to operate poorly, as a sole proprietorship. She should weigh the risks of holding the business solely without having to pay partnership expenses VS finding reliable partners to form a bigger capitalization, but still including the need to pay partner shares.
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If Mrs. Rayburn would continue the business despite the net loss of $2,505, if Mr. Rayburn would come back would he still get his share and be a part owner of the business considering that they are married?
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Due to marital concerns, Mr. Rayburn would still be able to get his share and co-own a part of the business. Since they are married, Mrs. Rayburn is still obliged to follow the legal protocol as her shares are still considered as marital property.
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Prepaid rent, classified under prepaid expenses is classified as a current asset. For the balance sheet of November 2, 1972, we debited $600 as the monthly prepaid rent and credited $600 as cash in the journal. The prepaid rent indicated in the balance sheet, under current assets, was then placed accordingly after posting the journal entries to a ledger and recording a trial balance.
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Should Mrs. Rayburn decide to continue with the business, what would you advise her to do?
Partner again with other people or continue as sole proprietorship? If your advise would be to
partner again, how do you think will she convince people to partner with her basing from the
financial statements of the business? If sole proprietorship, what advice would you give to keep
up with the losses?
Partner again with other people or continue as sole proprietorship? If your advise would be to
partner again, how do you think will she convince people to partner with her basing from the
financial statements of the business? If sole proprietorship, what advice would you give to keep
up with the losses?
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I would advise Mrs. Rayburn to get a good grasp of what happened and realize the potential situations when agreeing to form a partnership. If she commits again to a partnership, she must be cautious and learn that there are high levels of risk. A good to advise to give Mrs. Rayburn is to continue the business as a sole proprietor as being in a partnership is risky and due to the business’ financial position, it would be difficult for her to find willing and trustworthy partners. As for her losses, she could consider continuing her business at a much smaller enterprise compared to what they had initially to slowly recover and start being profitable.
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If Mrs. Rayburn decides to continue operating the business, what measures can she take so that she can pay off her loan and make the business profitable?
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Addressing Ms. Sia's question: The produced financial statements should be sufficient to guide her into making wise decisions to make the cafe more profitable. Based on her income statement of March 30, 1973, she can lower down her operating expenses, such as rent payments, monthly payments to partners, telephone and electricity, and miscellaneous expenses. Of course, increasing the sales will also be another option to boost income or make up for the expenses incurred. When purchasing supplies, she can also make amends or take advantage of cash discounts when applicable. She can also find more reliable partners who are willing to undertake the business with her, thus increasing capital and having more fluid cash to stabilize the business.
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What is the best course of action for Mrs. Rayburn? Considering the business suffered a net loss, should she consider selling the property?
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Mrs. Rayburn can consider increasing her loan from the bank or getting another loan to have more funds to finance the business operations, though not many banks may allow this method or this has some limitations to it. Considering to sell the property can also be an option if Mrs. Rayburn opts to not continue with the business field or if she feels there is no more chance of being able to recover from the net loss.
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In reply to Bienvenido Balotro
Re: Tecumseh Cafe A and B Discussion forum
If the stolen cash and cash register were to be considered as stolen and not taken by the owners, how would you account for them in the financial statements?
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In the balance sheet, reduce the asset account associated with the theft. In this case, reduce both the cash account and the cash register asset account. Reduce the accumulated depreciation account of the depreciable stolen asset. Reduce the owner's equity by the amount stolen. In the income statement, create a theft expense account. Record the amount stolen and all the expenses related to the theft.
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How would Mrs. Rayburn be able to collect their share of equity considering that their assets are not sufficient to cover the liabilities and expenses as of March 31, 2015? If both Mr. Rayburn and Mrs. Harris went missing, how would they get their share of the equity?
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Mrs. Rayburn would have to make an effort to liquidate their remaining assets to get her share. As for the others, it is their responsibility to make a legal claim for their share, but perhaps the accountant may contact them and tell them they may do so. They would have to help liquidate the assets too.
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Additionally, as for both Mr. Rayburn and Mrs. Harris, it is a general rule that committing a crime against a partner will dissolve the partnership because of unlawfulness or bad faith. If the partners demand for the equity before the crime occurred (on or before March 31, 1973), they are still rightful to obtain them; however if Mrs. Rayburn continues the business after March 31, 1973 (after the crime took place), her initial partners lose their rights of ownership and cannot demand for their own shares because of their crime.
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Given that the partnership incurred a net loss, which then posed a problem in terms of the distribution of equity among the partners after the dissolution was finalized, what are some assets that Mrs. Rayburn can opt to give out that would not ultimately compromise the operation of the business as a sole proprietorship? How much of an impact would full liquidation of the assets have on the subsequent operation of the business?
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In reply to Sheryl Chisom Madike
Re: Tecumseh Cafe A and B Discussion forum
by Franco Angelo Bayle -
Unfortunately, most of the asset value of the company is in the equipment. Full liquidation it would mean stopping operations completely, but an option would be to open the business again in an attempt to make more money, though this is highly unlikely to succeed.
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The exit of Mr. Rayburn and Mrs. Harris was abrupt and presumably had a significant impact on the business. Apart from this, there was also Asset Theft involved. Assuming of course that there was a Partnership Agreement that was made prior to the formation of their business, does Mrs. Rayburn have the right to seek damages from them? And up until what extent do you think may she exercise this right, given the situation?
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Seeking damages would be a completely different legal matter altogether, and the success of doing that would vary on the location, and specific details of this partnership, which we are not exactly privy to.
Though, I don't think she needs to seek damages from them. If the stolen assets are with the other owners, then that can simply be subtracted from their share of equity.
Though, I don't think she needs to seek damages from them. If the stolen assets are with the other owners, then that can simply be subtracted from their share of equity.
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From another angle, Mrs. Rayburn does have the right to seek damages from them. Her associates, Mr. Rayburn and Mrs Harris, may be guilty of "embezzlement", which is the "theft of money or a business asset by a person in a position of trust within the company". Her ex associates also have broken their “fiduciary duty” to protect the company in which they are a partner, co-owner or shareholder. The criminal offenses of embezzlement are strong bargaining chips to recover the lost money or property, and effectively remove them as partners. (Watkins, 2017)
(https://www.hg.org/legal-articles/what-happens-when-a-partner-or-co-owner-is-stealing-from-the-company-37100)
The stolen asset involved in this scenario was the cash register with the content and this was presumably taken by her ex partners. If she were to exercise her right fully, she would still be able to because she can produce detailed receipts for every expenditure as well as the details of these purchases to back up her account.
(https://www.hg.org/legal-articles/what-happens-when-a-partner-or-co-owner-is-stealing-from-the-company-37100)
The stolen asset involved in this scenario was the cash register with the content and this was presumably taken by her ex partners. If she were to exercise her right fully, she would still be able to because she can produce detailed receipts for every expenditure as well as the details of these purchases to back up her account.
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In reply to Bienvenido Balotro
Re: Tecumseh Cafe A and B Discussion forum
If Mrs. Rayburn continues to operate the business, would she be able to hire employees like for example, a cook (since Mr. Rayburn was the cook before) taking into consideration that the business has an outstanding net loss? Also, can’t Mrs. Rayburn sell Mr. Rayburn’s clothes for her to add the sales to her cash assets?
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For the 1st question, it looks like the business will not be able to hire a cook, basing on the current financial position of the business. Mrs. Rayburn can choose to become a reseller of products (save up on the cooking expense) instead, or get a new business partner who can do the cooking. For the 2nd question: Mrs. Rayburn can sell her husband’s clothes to increase her personal money which she could use to invest in her business. However, the selling of clothes should be considered separately from the business’ operations because the clothes are not part of the business’ merchandise. Therefore, the addition is not on sales but on the capital.
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In reply to Maria Alexandra Sarmiento
Re: Tecumseh Cafe A and B Discussion forum
by Franco Angelo Bayle -
She could always invest more capital into the business (though the initial investment were their entire savings) and hire staff, but considering how badly the business went, that might not be a sound decision.
As for the clothes, she definitely could! Though here, we're assuming that she may not be able to (due to sentimental value, or perhaps some moral leaning towards not selling her husband's things), and that whatever value is recovered is likely insignificant.
As for the clothes, she definitely could! Though here, we're assuming that she may not be able to (due to sentimental value, or perhaps some moral leaning towards not selling her husband's things), and that whatever value is recovered is likely insignificant.
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You mentioned that Mrs. Rayburn can still continue operating since she has invested so much of her time and money into it. At what point would you strongly advise her to discontinue the conduction of business at Tecumseh Café (e.g. at how much net loss)?
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In reply to Camille Anne Zamora
Re: Tecumseh Cafe A and B Discussion forum
by Danica Dixie Depante -
It is advisable for Mrs. Rayburn to discontinue operating the business when her loans or debts are greater than her income, and if the income from the business is not enough anymore to finance for the expenses and the salaries of its workers.
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In reply to Bienvenido Balotro
Re: Tecumseh Cafe A and B Discussion forum
Since the partnership has officially been dissolved and each partner is now able to take their share of equity should they choose to, is Mrs. Rayburn also able to take Mr. Rayburn’s share of equity in his place since they are married and he is missing?
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Based on contractual agreements, if Mrs. Rayburn decides to remain in the business after her partner leaves, she can establish a buy-sell agreement, which allows her to buy and own the ownership rights of the departing partners. Aside from this, it is a general rule that committing a crime against a partner will dissolve the partnership because of unlawfulness or bad faith. If the partners demand for the equity before the crime occurred (on or before March 31, 1973), they are still rightful to obtain them; however if Mrs. Rayburn continues the business after March 31, 1973 (after the crime took place), her initial partners lose their rights of ownership and cannot demand for their own shares because of their crime. Stepping back in may cause them to get arrested. From this, it is important to build an exit strategy by and between all partners to ensure the stability of the company, even upon dissolution of partners.
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In reply to Maria Patricia Ugalde
Re: Tecumseh Cafe A and B Discussion forum
by Franco Angelo Bayle -
It really depends on their agreements! Married couples can choose to split 50/50, but other agreements are available. Disregarding the 3rd party, the Rayburns can even be considered a sole proprietorship with one of them being an employee.
This matter has a lot of external factors too, such as the state they live in (some states enforce certain equity splits), and the prenuptual agreements the couple made.
However, since the Rayburns are mentioned to have contributed separately and equally, we assume that each spouse has a 50/50 cut, and so Mrs. cannot take Mr. Rayburn's share.
This matter has a lot of external factors too, such as the state they live in (some states enforce certain equity splits), and the prenuptual agreements the couple made.
However, since the Rayburns are mentioned to have contributed separately and equally, we assume that each spouse has a 50/50 cut, and so Mrs. cannot take Mr. Rayburn's share.
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Why are receivables recorded in the income statement? While it is true that in the accrual basis of accounting that revenue is recognized after sale/service is provided, that doesn't mean that it is included in the income statement. The uncollected receivable is simply recorded in the balance sheet. If you include receivables in both the income statement and the balance sheet, then it would be recorded twice and you will have overstated the value of your company.
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The 'accounts receivable' account listed in the income statement is the counterpart of 'A/R' credited in the journal. We included the uncollected A/R in the balance sheet assets as we have debited this in our journal, and placed its credited counterpart, which is the 'Sales' provided that resulted from the A/R (accrual basis) in the income statement.
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