Question

Zola, Becker, and Amber were all CPAs and had worked in the industry for more than 10 years. Each had graduated from College, passed their CPA on the first try and been very successful as Public Accountants. However, each of them wanted to be independent and start their own firm. They met at an industry conference and over dinner, after much discussion, they decided to form a three-person partnership: (YNT).

Over the next few weeks, they drew up a partnership agreement where they would share profits and losses equally and neither of them would be paid a salary. They also agreed to each contribute $100,000 of their own funds. They also realised that they would need an additional $400,000 in outside financing and began to look for a bank to provide them with the funds.

After some research, YNT settled on Citibank as the loan provider offering the most favourable terms. The bank requires that YNT provide 2 years of financial statements (income statement, balance sheet and statement of cash flow). YNT anticipates the firm will lose money in the first year and finally become profitable in the third year and remain that way into the future. Some features of the first year are:

• Hire 2 staff people and 1 office assistant; $8,000 per month; yearly cost of $96,000.
• Other expenses of $6,000 per month will be incurred; yearly cost of $72,000.
• Revenue of $120,000 is expected in the first year based on the following schedule:

Income Statement	Jan-19	Feb-19	Mar-19	Apr-19	May-19	Jun-19	Jul-19	Aug-19	Sep-19	Oct-19	Nov-19	Dec-19
Revenue
Write-Ups		$     1,000	$     2,000	$    6,000	$     6,000	$ 7,000	$     7,000	$    7,000	$    7,000	$ 7,000	$    8,000	$     8,000
Audits							$    10,000	$ 10,000	$ 10,000
Misc	$   2,000	$     2,000	$     2,000	$    2,000	$     2,000	$ 2,000	$     2,000	$    2,000	$    2,000	$ 2,000	$    2,000	$     2,000
Total Revenue	$   2,000	$     3,000	$     4,000	$    8,000	$     8,000	$ 9,000	$    19,000	$ 19,000	$ 19,000	$ 9,000	$ 10,000	$    10,000

• Net loss anticipated for the first year will be $48,000.00
• Each partner will draw $6,000 per month to pay personal expenses. This will be a deduction from partner’s capital.
• Fixed assets of $150,000 will be purchased in the first month consisting of the following items:
  • 2 Company Cars - $50,000
  • Furniture and fixtures - $75,000
  • Computers - $25,000
• To simplify transactions in the first year the following will occur:
  • Revenue will be collected immediately (No receivables)
  • Expenses will be paid immediately (No payables)
  • Fixed assets will not be depreciated.
  • The principal of the loan will not be repaid
  • Interest will not be charged on the outstanding principal
  • The business will begin on January 2, 2019

Based on the above information prepare (Balance sheet, income statement and statements-direct and indirect- of cash flow) for YNT.

YNT – Public Accountants reflecting the first day of operation – January 2, 2019 and the first month of operation January 31, 2019. Use the Template provided
Day 1 Dec-05 Balance Sheet Cash Fixed assets Direct Statement of Cash Flow Cash from customers Cash to vendors Other cash expenses Cash from (to) Operations Total assets Loan payable Partner capital Partner draw Retained earnings Total liabilities and owner equity Purchase of fixed assets Cash from (to) Investment Loans Partner contribution Partner draw Cash from (to) Financing Income Statement Revenue Write-Ups Audits Misc Increase (decrease) Cash Beginning balance Ending balance Total Revenue Expenses Personnel Other than personnel Total Expenses Indirect Statement of Cash Flow Net Income Cash from (to) Operations Net Income Purchase of fixed assets Cash from (to) Investment Loans Partner contribution Partner draw Cash from (to) Financing Increase (decrease) Cash Beginning balance Ending balance

Answer 1

During the year cash received Capital 300000, Loan 400000 and from operation 120000. Operation loss is 48000, assets purchased 150000 and partners drwaing 216000. So inflow 820000 ( 300000+400000+120000) and out flow expenses 168000, drawings 216000 and capital purchase 150000 totalling to 534000. Balance Cash is hand at the end is 286000

Balance Sheet	Day 1	Dec-05			Direct Statement of Cash Flow
					Cash from Customer	96000
Cash	700000	286000			Cash from vendors	24000
Fixed Assets		150000			Other cash Expenses		168000
					Cash from(to) operation		-48000
Total Assets	700000	436000
					Purchase of Fixed Assets		150000
					Cash from(to) Investment		150000
Loans Payable	400000	400000
Partners Capital	300000	300000
Partners Draw		-216000			Loans	400000
Retain Earnings		-48000			Partners Contribution	300000
					Partners Draw		216000
Total Liabilities and Owner Equity	700000	436000			Cash from(to) Financing	484000
	0	0				484000	264000
Income Statement					Increase(decrease) Cash	414000
					Beginning Balance		700000
Revenue					Ending Balance	286000
Write Ups		66000
Audits		30000			Indirect Statement of Cash Flow
Misc		24000			Net Income		-48000
Total Revenus		120000			Cash from(to) Operation		-48000
Expenses
Personnel		96000			Purchase of Fixed Assets		150000
Other than Personnel		72000			Cash from(to) Investment		150000
		168000
Net Income		-48000			Loans		400000
					Partners Contribution		300000
					Partners Draw		216000
					Cash from(to) Financing		484000
					Increase (Decrease) in Cash		414000
					Beginng Balance		700000
					Ending Balance