Shetland K-9 Academy Dustin Leibovitch has just completed his courses in dog care, training, and grooming and is excited about opening his new business, Shetland K-9 Academy (SK9). SK9 has been a dream for Dustin and he has come to you for some help on how to organize his financial affairs. Dustin has received a $20,000 start-up loan from the Manitoba government under a recently announced new venture program. He is allowed to use the loan to purchase equipment that he needs to run his business. He is not allowed to use the money for salaries (to him or any employees), rental, or any operating expenses (such as hydro). The government will not require any payments on the principal of the loan until the be- ginning of year six. At this time, SK9 will make payments of $5,000 annually at the beginning of each year. However, interest of 4% will accrue on the loan balance immediately and interest payments on the outstand- ing balance are due annually. There is an annual requirement by the government for financial statements. This is to make sure that SK9 is performing satisfactorily. In addition to the loan, Dustin provides you with the following information: Dustin intends on contributing $125,000 of his own savings to the business along with his computer. His computer is valued at $400. Although he hasn't signed the lease agreement yet, Dustin has agreed to rent space in a popular area just outside of the city. The space used to be a pet grooming centre, so little needs to be done to it except to add his equipment. The rental agreement calls for payments of $5,000 per month with the last month's rent being paid in advance (before he opens his grooming centre). Dustin is going to advertise in the local papers and on the radio. Advertising is expected to cost $8,000. Because Dustin does not have a credit history, he will have to pay half this amount in advance before any advertising runs. The other half is to be paid when it finishes. Dustin thinks that two months of advertising his new business is sufficient and then word of mouth should take over. Research shows that dog owners spend a significant amount of money on their pooches including grooming services and day care. Since he has no outside space, he won't have the ability to operate a day care. As a result, Dustin is going to concentrate on washing, trimming, and nails. There will be three packages offered for grooming. The gold package gives the pooch the full treatment, including wash, cut, style, and nails; the silver provides a wash and dry service; and the bronze package gives them a good brushing but no wash. He will also offer a quick nail service that takes about 10 minutes and will carry a charge of $10. He also intends to stock his store with inventory items such as dog bowls, leashes, collars, and toys. In addition to the grooming at the store, Dustin will offer to do at-home training. The training packages will be 20 lessons, 10 lessons, or 5 lessons. Dustin isn't quite sure which one will be most popular and wants to be able to track them. Dustin knows he needs to buy the following equipment: Three pet table lifts, $5,000 each; groom- ing equipment, $10,000; three tables, $1,000 each; two bathtubs, $2,000 each; holding cage, $500; desk, $1,000. In addition, there will some other miscellaneous equipment costing approximately $10,000. Dustin expects to hire two part-time helpers. They would each average 15 hours per week for 50 weeks each year at an hourly rate of $15. In addition, Dustin expects to pay hydro and other utility costs of $500 per month and telephone/ Internet charges of $200 per month. The only other real monthly expense he sees is liability insur- ance. The quote he received was $185 per month. Shetland K-9 Academy Dustin Leibovitch has just completed his courses in dog care, training, and grooming and is excited about opening his new business, Shetland K-9 Academy (SK9). SK9 has been a dream for Dustin and he has come to you for some help on how to organize his financial affairs. Dustin has received a $20,000 start-up loan from the Manitoba government under a recently announced new venture program. He is allowed to use the loan to purchase equipment that he needs to run his business. He is not allowed to use the money for salaries (to him or any employees), rental, or any operating expenses (such as hydro). The government will not require any payments on the principal of the loan until the be- ginning of year six. At this time, SK9 will make payments of $5,000 annually at the beginning of each year. However, interest of 4% will accrue on the loan balance immediately and interest payments on the outstand- ing balance are due annually. There is an annual requirement by the government for financial statements. This is to make sure that SK9 is performing satisfactorily. In addition to the loan, Dustin provides you with the following information: Dustin intends on contributing $125,000 of his own savings to the business along with his computer. His computer is valued at $400. Although he hasn't signed the lease agreement yet, Dustin has agreed to rent space in a popular area just outside of the city. The space used to be a pet grooming centre, so little needs to be done to it except to add his equipment. The rental agreement calls for payments of $5,000 per month with the last month's rent being paid in advance (before he opens his grooming centre). Dustin is going to advertise in the local papers and on the radio. Advertising is expected to cost $8,000. Because Dustin does not have a credit history, he will have to pay half this amount in advance before any advertising runs. The other half is to be paid when it finishes. Dustin thinks that two months of advertising his new business is sufficient and then word of mouth should take over. Research shows that dog owners spend a significant amount of money on their pooches including grooming services and day care. Since he has no outside space, he won't have the ability to operate a day care. As a result, Dustin is going to concentrate on washing, trimming, and nails. There will be three packages offered for grooming. The gold package gives the pooch the full treatment, including wash, cut, style, and nails; the silver provides a wash and dry service; and the bronze package gives them a good brushing but no wash. He will also offer a quick nail service that takes about 10 minutes and will carry a charge of $10. He also intends to stock his store with inventory items such as dog bowls, leashes, collars, and toys. In addition to the grooming at the store, Dustin will offer to do at-home training. The training packages will be 20 lessons, 10 lessons, or 5 lessons. Dustin isn't quite sure which one will be most popular and wants to be able to track them. Dustin knows he needs to buy the following equipment: Three pet table lifts, $5,000 each; groom- ing equipment, $10,000; three tables, $1,000 each; two bathtubs, $2,000 each; holding cage, $500; desk, $1,000. In addition, there will some other miscellaneous equipment costing approximately $10,000. Dustin expects to hire two part-time helpers. They would each average 15 hours per week for 50 weeks each year at an hourly rate of $15. In addition, Dustin expects to pay hydro and other utility costs of $500 per month and telephone/ Internet charges of $200 per month. The only other real monthly expense he sees is liability insur- ance. The quote he received was $185 per month. While Dustin is better at pet grooming than he is accounting, he knows he can rely on you. One thing he is sure about is that he doesn't want to risk losing the new Ford Explorer he just bought as his graduation present to himself. 70 70 Canadian Financial Accounting Cases He has asked you to prepare a short report that starts by providing recommendations on how he should structure his business from a legal/organizational point of view. Once this is done, he needs you to help him set up his accounting by going through the items and identifying which ones are assets, liabilities, expenses, and revenues. Specifically on the revenues, he wants you to provide some recommendations on how he should record them; all in one account or several, and why. It may be best to start by setting up a statement of financial position and income statement that lists the names of all the accounts classified accordingly. He can hardly wait to get started and is awaiting your reply. Required Prepare the report. Corporation vs. Sole prop 2. For example to point #1 - discuss pros Coss. @Dustin Contributing $125,000 Shore holder Contributin - Lability Cash - Asset Computer Asset *Please also prepone journal entries. Please have the journal entries as Appendix * remember format is important. You do not need to do financial reporting issues for this case. I would recommend using a Chart to lay out your APLIRIE