Fellinghan Software Company has assets of $850,000 and liabilities of $460,000.
a. Prepare the owners’ equity section of the company’s balance sheet under each of the following independent assumptions:
1. The business is organized as a sole proprietorship, owned by Johanna Small.
2. The business is organized as a partnership, owned by Johanna Small and Mikki Yato. Small’s equity amounts to $240,000.
3. The business is a corporation with 25 stockholders, each of whom originally invested $10,000 in exchange for shares of the company’s capital stock. The remainder of the stockholders’ equity has resulted from profitable operation of the business.
b. Assume that you are a loan officer at Security Bank. Fellingham has applied to your bank for a large loan to finance the development of new products. Does it matter to you whether Fellingham is organized as a sole proprietorship, a partnership, or a corporation? Explain.
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