Thè Fluff Business) uff Inc., Year You have decided that this university life is not for you. Instead, you have decided to go into the business of selling Fluffs. You decide to operate the business as a corporation, Fluff, Inc. On January 1, 20Y1 you begin with $30,000 cash; $20,000 of the money is yours and $10,000 is borrowed from your Uncle Mike. For the $20,000 of yours, you issue yourself 100 shares of common stock. For the $10,000 borrowed from your uncle, you sign a note agreeing to pay back that amount on December 31, 20Y4 and you will pay interest at 10% at the end of each year. On January 1, 20Y1, you bought 8 Fluffs for $3,000 each. During the year you sold 5 Fluffs for $7,000 each. You also paid a security deposit of $2,000, advertising expense of $4,200 and 12 months' rent of $10,800. In addition to the cash you invested on January 1st, on August 1st you also invest a piece of land that you own into the business that is worth $40,000 in exchange for 200 more shares of stock. You pay the first year's interest to Uncle Mike of $1,000 on December 31 of 20Y1. Your tax rate is 30% of your income before taxes and you paid 50 % of these taxes this year and will pay the rest in 20Y2. So how did you do?
Thè Fluff Business) uff Inc., Year You have decided that this university life is not for you. Instead, you have decided to go into the business of selling Fluffs. You decide to operate the business as a corporation, Fluff, Inc. On January 1, 20Y1 you begin with $30,000 cash; $20,000 of the money is yours and $10,000 is borrowed from your Uncle Mike. For the $20,000 of yours, you issue yourself 100 shares of common stock. For the $10,000 borrowed from your uncle, you sign a note agreeing to pay back that amount on December 31, 20Y4 and you will pay interest at 10% at the end of each year. On January 1, 20Y1, you bought 8 Fluffs for $3,000 each. During the year you sold 5 Fluffs for $7,000 each. You also paid a security deposit of $2,000, advertising expense of $4,200 and 12 months' rent of $10,800. In addition to the cash you invested on January 1st, on August 1st you also invest a piece of land that you own into the business that is worth $40,000 in exchange for 200 more shares of stock. You pay the first year's interest to Uncle Mike of $1,000 on December 31 of 20Y1. Your tax rate is 30% of your income before taxes and you paid 50 % of these taxes this year and will pay the rest in 20Y2. So how did you do?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Partnership Accounting
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings, admission of a new partner, etc.
Partner Admission and Withdrawal
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings of a partner, etc.
Question
Transcribed Image Text:Fluff Inc., Year 20Y11
You have decided that this university life is not for you. Instead, you have decided to go into the
business of selling Fluffs. You decide to operate the business as a corporation, Fluff, Inc. On
January 1, 20Y1 you begin with $30,000 cash; $20,000 of the money is yours and $10,000 is
borrowed from your Uncle Mike. For the $20,000 of yours, you issue yourself 100 shares of
common stock. For the $10,000 borrowed from your uncle, you sign a note agreeing to pay
back that amount on December 31, 20Y4 and you will pay interest at 10% at the end of each
year. On January 1, 20Y1, you bought 8 Fluffs for $3,000 each. During the year you sold 5
Fluffs for $7,000 each. You also paid a security deposit of $2,000, advertising expense of
$4,200 and 12 months' rent of $10,800. In addition to the cash you invested on January 1st, on
August 1st you also invest a piece of land that you own into the business that is worth $40,000
in exchange for 200 more shares of stock. You pay the first year's interest to Uncle Mike of
$1,000 on December 31 of 20Y1. Your tax rate is 30% of your income before taxes and you
paid 50 % of these taxes this year and will pay the rest in 20Y2. So how did you do?
(The Fluff Business)
You need to do Joumal Entries, T-Accounts, Income Statement, Balance Sheet and Statement of Owners' Equity
Tax Expense is $1,200
Total Owners' Equity is $62,800
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