Natalies high school friend, Katy Peterson, has been operating a bakery for approximately 18 months. Because Natalie has been so successful operating Continuing Cookie Chronicle, 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.

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.

Assume that Natalie and Katy go ahead and form a partnership called Continuing Cookie Chronicle 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

The Baker's Nook Continuing Cookie Chronicle $12,000 800 Cash Accounts receivable Allowance for doubtful accounts Inventory Equipment Notes Payable (bank loan) $1,500 6,000 (750) 450 7,500 10,000 1,200 1,000