CC12Natalies high school friend, Katy Peterson, has been operating a bakery for approximately 18 months. Because Natalie has been so successful operating Cookie Creations, Katy would like to have Natalie become her partner. Katy believes that together they will create a thriving cookie-making business. Natalie is quite happy with her current business set-up. Until now, she had not considered joining forces with anyone. However, Natalie thinks that it may be a good idea to establish a partnership with Katy, and decides to look into it. From past meetings with Katy, Natalie has gathered the following information about Katys business and compared it to her own results. The current market values of the assets and liabilities of both businesses are as follow. The Bakers Nook Cookie Creations Cash $ 1,500 $12,000 Accounts receivable 6,000 800 Allowance for doubtful accounts (750) 0 Inventory 450 1,200 Equipment 7,500 1,000 Notes payable (bank loan) 10,000 0 All assets would be transferred into the partnership. The partnership would assume all of the liabilities of the two proprietorships. The bank loan (notes payable) is due February 17, 2018. Additional information: Katy operates her business from leased premises. She has just signed a lease for 12 months. Monthly rent will be $1,000. Katys landlord has agreed to draw up a new lease agreement that would be signed by both partners. Katy graduated from cooking school. She has no personal assets and a lot of student loans and credit card debt. Natalies personal assets consist of investments in personal U.S. Savings Bonds. Natalie has no personal liabilities. Katy is reluctant to have a partnership agreement drawn up. She thinks its a waste of both time and money. As Katy and Natalie have been friends for a long time. Katy is confident that any problems that arise can be easily resolved over a nice meal. Natalie thinks that it may be a good idea to establish a partnership with Katy. She comes to you with the following questions. 1. Do I really need a formalized partnership agreement drawn up? What would be the point of having one if Katy and I agree on all major decision? What type of information should the partnership agreement contain? 2. I would like to have Katy contribute the same amount of capital as I am contributing. How much additional cash, in addition to the amount in Katys proprietorship, would Katy have to borrow to invest in the partnership so that she and I have the same capital balance? 3. Katy has a lot of personal debt. Should this affect my decision about whether or not to go forward with this business venture? Why or why not? 4. What other issues should I consider before I say yes or no to Katy? Instructions (a) Answer Natalies questions. (b) Assume that Natalie and Katy go ahead and form a partnership called Cookie Creations and More on November 1, 2017, and that Katy is able to borrow the additional cash she need to contribute to the partnership. Prepare a balance sheet for the partnership on November 1.