PACIFIC RESTAURANTS LLC

Sitting across your desk is Pacific Restaurants LLC's managing member, Brian McIntyre.He has been a client of your accounting firm for many years while employed as manager of D-Back Restaurants.Throughout the years, he has saved enough money to open his own restaurant.As you read through the limited liability company operating agreement, you learn that Brian has 3 more partners or members, and that each member will contribute an equal amount of capital to start the business (Table 1).Brian confides that although relatives and friends have recommended that he forms a limited liability company, he knows little about this entity except that it will provide him with liability protection.He is also aware that he could elect to be taxed as either a partnership or a corporation.His associates in this venture are split between these two alternatives.He needs your assistance in weighing his options.His lawyer explained the legal aspects of the LLC and recommended that he arranges a meeting with you to discuss any tax implications.

The operating agreement and state filing requirements were effectuated 30 days ago on April 1^st, 20X2Brian plans to open the restaurant on July 1^st.Brian prepared projected financial statements for his business plan for the next 3 years (Table 3).As stated in the operating agreement, Brian is the managing member and has the authority to make contractual decisions for the LLC.As managing member, he is entitled to guarantee payments (Table 2).Member No. 2 is Brian's wife.She is a stay at home mother of two and has her own business making custom wedding cakes. Members No. 3 and 4 reside out-of-state and have full time jobs in their state of residence.They plan to travel once or twice a year to meet and discuss with Brian the restaurant's operations.

At the end of the meeting, you cordially ask Brian to leave a copy of the operating agreement and promise to get back to him with a recommendation in the next couple of days.

Table 3 - Projected Financial Statements BALANCE SHEET PACIFIC RESTAURANTS, LLC 20X2 20X3 20X4 CURRENT ASSETS Cash $ 13,449 $ 15,804 $ 28,384 Accounts receivable 6,459 9,689 15,502 Food & Beverage inventory 18,923 23,984 43,886 TOTAL CURRENT ASSETS 38,831 49,476 87,771 FIXED ASSETS Equipment 50,000 57,500 66,125 Vehicles 84,473 97,144 Building 68,918 79,256 131,144 TOTAL FIXED ASETS 118,918 221,229 294,413 TOTAL ASSETS $ 157,749 $ 270,705 $ 382,184 CURRENT LIABILITIES Accounts payable 38,269 57,404 33,554 TOTAL CURRENT LIABILITIES 38,269 57,404 33,554 OWNERS' CAPITAL Capital 200,000 200,000 200,000 Draws (7,162) (222,945) Net Profit/(Loss) 80,520) 20,464 371,575 TOTAL OWNERS' CAPITAL 119,480 213,301 348,630 TOTAL LIABILITIES & OWNERS' CAPITAL $ 157,749 $ 270,705 $ 382,184Partnership C Corporation 2018 2018 - PARTNER 1 PARTNER 2 SHAREHOLDER PARTNER 1 BASIS PARTNER 2 BASIS 2018 2018 BTOZ EFFECTIVE TAX RATE TOTAL FOR BOTH PARTNERSTable 3 - Projected Financial Statements PROFIT & LOSS STATEMENT PACIFIC RESTAURANTS, LLC 20X2 2033 20x4 REVENUES Sales Food :5 558,075 $ 837,113 $ 1,339,380 Sales Beverages 211,558 317,337 507,739 TOTAL REVENUES 769,633 1,154,450 1,847,119 F&B COSTS Purchases - Food 204,061 265,279 344,863 Purchases - Beverages 127,824 166,171 216,023 TOTAL F&B COSTS 331,885 431,451 560,886 GROSS PROFIT $ 437,748 $ 722,999 $ 1,286,234 OPERATING EXPENSES Salaries & wages 302,236 392,906 510,778 Employee benets 39,942 51,925 67,502 Advertising 67,888 88,254 1 14,73 1 Depreciation 1 1,892 44,246 58,883 Administrative & general expenses 82,030 106,639 138,631 Meals & entertainment 9,554 12,420 16,146 Political contributions 1,550 2,015 2,620 Repairs & maintenance 3,177 4,130 5,369 TOTAL OPERATING EXPENSES 518,269 702,536 914,659 NET PROFIT OR (LOSS) $ (80,521) $ 20,463 $ 371,574 Table 1 - Capital Contributions (Cash unless indicated) 1. Brian Mcintyre - Managing Member $50,000 2. Sophia Mcintyre $50,000 3. Margaret Vitale Restaurant equipment: adjusted basis of $35,000 and a FMV of $50,000 4. Donald Hong $50,000 Table 2 - Brian's Guarantee Payments 2012 2013 2014 $70,000 $80,000 $90,000