Financial Accounting Case

Topics: Investment, Income, Capital Pages: 2 (422 words) Published: January 21, 2013
Financial Case Decision

L & T Bar is owned by James Land and Larry Teague. They are running their business successfully. Now they have decided to expand their business by opening up another bar in the north part of town. For this purpose they need a partner, who can invest capital and has expertise. Currently, James and Larry’s salaries are $25000 each and they divide the remaining profit equally. They are willing to give equal share of the business to third partner for $142,000. They also agree to give a salary of $25000 and 1/3 of the profit.

Question no 1
Land capital 140,000
Teague capital 120,000
Cash invested by new partner 142000
Partners’ equity in new partnership 402000
Partners equity assigned to new partner 402000/3= 134000

Question no 2

Projected Income
19x1SalariesCapital DistributionTotal income
James Land25000833333333
Leary Teague25000833333333
New partner25000833333333
Net Income100000

19x2SalariesCapital DistributionTotal income
James Land250001500040000
Leary Teague250001500040000
New partner250001500040000
Net Income120000

19x3SalariesCapital DistributionTotal income
James Land250001833343333
Leary Teague250001833343333
New partner250001833343333
Net Income130000

19x4SalariesCapital DistributionTotal income
James Land250002166646666
Leary Teague250002166646666
New partner250002166646666
Net Income140000

19x5SalariesCapital DistributionTotal income
James Land250002500050000
Leary Teague250002500050000
New partner250002500050000
Net Income150000

Expected Salary3400038000420004500050000209000
Projected Income3333340000433334666650000213332

Total expected income is little bit more than expected total salaries. But on the other hand new partner has to invest $ 142000 cash for $ 134000 capital. So the new partner will pay cash as well as he will...
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