Question 2 please

Ballister Dorth created Ballister Systems on October 1, 2020. Dorth is organized as a sole proprietorship and will provide consulting services, computer system installations, and custom program development. Dorth has adopted the calendar year for reporting and prepared the company's first set of financial statements as of December 31, 2021. Over the three months since the 2021 yearend Ballister has been in conversation with Jessie Swanson. Jessie is interested in joining the firm and would like to become partners with Ballister. Ballister likes Jessie and sees this as an opportunity to expand but is worried about liability issues around taking on a partner. Jessie has $200,000 in cash and an office building with a fair value of $170,000 for the land and $450,000 for the building to contribute to the business. He is willing to transfer title of the office building to Ballister Systems if the company will take on the $260,000 mortgage. In return Jessie would like an $85,000 per year salary allowance, 10% on his original investment and to share the remaining income or loss 50:50 with Ballister. He has agreed that Ballister should receive $90,000 in salary and 10% on his original investment (beginning balance in capital) as well. Ballister has provided you with his financial statements as prepared by his brother. Use these financial statements as a basis for your analysis (see pages 2 and 3). Required: 1. Regarding the formation of a partnership: a) Prepare a memo for Ballister identifying the pros and cons of accepting Jessie as a partner and calculate the amount of income Ballister can expect for the next year if the rest of the year's Revenues and Expenses a) stay the same, b) double and c) decline by 60%. Calculate income for each possibility. b) Prepare the journal entry to accept Jessie into the company on April 1, 2021. 2. Jessie has brought up the idea of incorporating instead. a) It will cost the company $3,400 to incorporate but Jessie feels that it would better protect his life partner (Sam) if the business runs into problems. Prepare another memo itemizing the pros and cons of incorporating and calculate the amount of income Ballister can expect for the next year if the rest of the year's Revenues and Expenses a) stay the same, b) double and c) decline by 60%. Assume that all salary and interest allowances are honoured by the corporation (ie become salary expense and income expense). b) Prepare the journal entries to change the company into a corporation and to accept Jessie into the firm. Assume each partner receives the same number of shares - 200,000 shares issued. $219.228 40,025 7,650 Ballister Systems Balance Sheet 31-Mar-18 Assets Current assets: Cash Accounts receivable Merchandise Inventory Computer Supplies Prepaid Insurance Prepaid Rent Total current assets Property, plant and equipment: Office Equipment Less: Accumulated Depreciation, Office Equipment Computer Equipment Less: Accumulated Depreciation, Computer Equipment Total property, plant and equipment Total assets 7,560 7.425 $281,953 $20,520 $22,800 2.280 $11,640 2,910 8.730 29.250 $311 203 Liabilities Current liabilities: Accounts Payable Wages Payable $84,401 3,600 Equity Ballister Dorth, Capital Total liabilities and equity 223 202 $311 203 Page 3 of 3 Ballister Dorth created Ballister Systems on October 1, 2020. Dorth is organized as a sole proprietorship and will provide consulting services, computer system installations, and custom program development. Dorth has adopted the calendar year for reporting and prepared the company's first set of financial statements as of December 31, 2021. Over the three months since the 2021 yearend Ballister has been in conversation with Jessie Swanson. Jessie is interested in joining the firm and would like to become partners with Ballister. Ballister likes Jessie and sees this as an opportunity to expand but is worried about liability issues around taking on a partner. Jessie has $200,000 in cash and an office building with a fair value of $170,000 for the land and $450,000 for the building to contribute to the business. He is willing to transfer title of the office building to Ballister Systems if the company will take on the $260,000 mortgage. In return Jessie would like an $85,000 per year salary allowance, 10% on his original investment and to share the remaining income or loss 50:50 with Ballister. He has agreed that Ballister should receive $90,000 in salary and 10% on his original investment (beginning balance in capital) as well. Ballister has provided you with his financial statements as prepared by his brother. Use these financial statements as a basis for your analysis (see pages 2 and 3). Required: 1. Regarding the formation of a partnership: a) Prepare a memo for Ballister identifying the pros and cons of accepting Jessie as a partner and calculate the amount of income Ballister can expect for the next year if the rest of the year's Revenues and Expenses a) stay the same, b) double and c) decline by 60%. Calculate income for each possibility. b) Prepare the journal entry to accept Jessie into the company on April 1, 2021. 2. Jessie has brought up the idea of incorporating instead. a) It will cost the company $3,400 to incorporate but Jessie feels that it would better protect his life partner (Sam) if the business runs into problems. Prepare another memo itemizing the pros and cons of incorporating and calculate the amount of income Ballister can expect for the next year if the rest of the year's Revenues and Expenses a) stay the same, b) double and c) decline by 60%. Assume that all salary and interest allowances are honoured by the corporation (ie become salary expense and income expense). b) Prepare the journal entries to change the company into a corporation and to accept Jessie into the firm. Assume each partner receives the same number of shares - 200,000 shares issued. $219.228 40,025 7,650 Ballister Systems Balance Sheet 31-Mar-18 Assets Current assets: Cash Accounts receivable Merchandise Inventory Computer Supplies Prepaid Insurance Prepaid Rent Total current assets Property, plant and equipment: Office Equipment Less: Accumulated Depreciation, Office Equipment Computer Equipment Less: Accumulated Depreciation, Computer Equipment Total property, plant and equipment Total assets 7,560 7.425 $281,953 $20,520 $22,800 2.280 $11,640 2,910 8.730 29.250 $311 203 Liabilities Current liabilities: Accounts Payable Wages Payable $84,401 3,600 Equity Ballister Dorth, Capital Total liabilities and equity 223 202 $311 203 Page 3 of 3