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22 Part I Fincial dccounting Cases ase 1-1 Ribbons an' Bows, Inc. f her business transac already installed to keep track of her bus In January 2010, Carmen Diaz, a recent arrival from Carmen reviewed the activity in the company g the deposit of the loon Cuba, decided to open a small ribbon shop in the tions and correspon On March 31, before opening for business the Coconut Grove section of Miami, Florida. During the month, she put together a simple business plan, which she took to several relatives whom she believed would be interested in helping her finance the new venture day, Carmen rev cash bank account. Followin new venture. and equity contribution, the following payments wers Two of her cousins agreed to loan the business $10,000made $1,200 $3,300 hs rent Last two mont 2. Opening merchandise inventory 2. Opening for one year at a 6 percent interest rate. For her part, Carmen agreed to invest $1,000 in the equity of the of the business. On March 1, 2010, with the help of an uncle who 3. Cash register deposit practiced law, Carmen formally incorporated her busi-4. Store supplic ness, which she named "Ribbons an' Bows." Nor- 5. April 2 edition advertising 6. Used computer purchase mally, the uncle would have charged a fee of $600 for handling the legal aspects of a simple incorporation After reviewing her cash transaction records but, since Carmen was family, he waived the fee. As soon as the new business was incorporated Carmen Carmen opened a bank was incorporated Carmen prepared a list of Ribbons an' Bows assets and account and deposited the cousins S10.000 loan and her $1,000 equity contribu- tion. The same day, she signed an agreement to rent sources of its capital (see Exhibit EXHIBIT 1 Carmen's March 31, 2010, Ribbons store space for $600 per month, paid on the last day of an'Bows Assets and Capital Sources List the month. The agreement was for an 18-month period beginning April 1. The agreement called for a prepay- ment of the last two months' rent, which Carmen paid Sources of Capital Assets Cash out of the company bank account at the signing S 4,000 3,300 Inventory Supplies Over the next few weeks, Carmen was actively en- gaged in geting ready to open the store for business Prepaid rent on April 1. Fortunately for Carmen, the previous ten- Prepaid advertising ant had left counters and display furniture that Carmen Computer/ 1,200 150 could use at no cost to her. In addition, the landlord agreed to repaint the store at no cost, using colors of Carmen's choice. For her part, Carmen ordered, re- ceived and paid for the store's opening inventory of Cousin's 2,000 loan $10,000 Carmen's software Cash register deposit $11,000 ribbons and ribbon accessories; acquired for free a simple cash register with credit-card processing capa- Carmen eventually decided to expand her business bilities from the local credit-card charge processing by selling custom-designed ribbon table arrangements company after paying a refundable deposit;, signedfor weddings and other special events. This decision service agreements with the local phone and utility led to the purchase of a used commercial sewing ma companies; ordered received, and paid for some store chine for $1,800 cash on May 1 supplies; and placed and paid for advertising an- in the April 2 edition of nouncing the store opening i the local pap Later, at a family Fourth of July celebration, onc Carmen's cousins reminded her that she had pr er In addition, she bought and paid for a to send the cousins a financial report covering the er with basic business software month period from March 1 to June 30