Valeria, who graduated from college last year with a Bachelor of Business Administration degree with a Marketing concentration, is at a career crossroad. Last year, after some job hunting, Valeria managed to get a job as a marketing assistant for a prominent realtor in the area, Diane. With a colourful, outgoing personality, Valeria was a natural fit to host home viewings and even going door-to-door talking to homeowners, brochures in hand. Diane quickly realized that Valeria was a bigger help to her than anyone she had hired before and bumped up his compensation from an hourly minimum wage to $26,500 a year (they agreed on about twenty-four hours a week, mostly on weekends). Valeria believes she can earn $55,000 a year working full-time in real estate, but that would be long, slow climb up- perhaps over five years. Diane also reimburses Valeria for his driving at the prescribed CRA rate (61 per kilometre for the first 5,000 kilometres driven in 2022).

While Valeria has strictly tracked his kilometres driven for work purposes in the past, she has been a bit concerned about the rising fuel and vehicle maintenance costs. She is wondering if she should add some of his personal driving to the weekly mileage totals she reports to Diane- she doesnt really ask for details and she does tend to talk about her new listings quite a bit outside of work hours. For instance, she discussed juicy details of specific buyers and sellers with his friends at a busy birthday party last Tuesday. Valeria is considering taking a second job which would pay her $17.75 an hour for six hours of work per day, four weekdays per week. While this would mean immediate cash in his pocket (she is currently living paycheck to paycheck), the job doesnt really relate to her career, nor does it have potential for promotion in the field (waste management). Due to her tight cash situation, Valeria was about to accept the job on the spot after calling the number her friend had given her. However, she decided to hold off for a bit as the manager wanted her to start this week, which would conflict with her scheduled hangout with friends.

Valeria is also considering his own start-up, a travel agency business. While scheduling a family vacation at age 15 (his parents were swamped with their bakery business at the time), Valeria realized she had a natural knack for booking flights, applying for tourist visas, researching the best resort deals, etc. She managed to negotiate his way to such a great and affordable trip that his parents and sister insisted that she plan all their vacations each year. Furthermore, his uncles and aunties also insisted on getting his help! Valeria believes she can finally monetize on his abilities. With $4,500 worth of one-time advertising (brochures and social media ads), Valeria estimates that she can book $200,000 worth of vacation activity in his first year. From this, she can charge a fee of 5%. While this wouldnt mean much money immediately, especially considering she would be spending about ten hours a week on the business, Valeria does believe she can double the $200,000 number in the second year once word-of-mouth really kicks in. Then, she would be in a position to raise the fee to 6% and benefit from 10% year-over-growth for three years. After that, the fee would be raised to 7.50% at that point with flat revenues for the following five years. She has run some rough numbers and believes business expenses (mostly car-related) can be held to only 12% of business revenues with this plan- she hasnt considered borrowing costs yet, though. Luckily, Valeria has no student loan debt and pays a very low monthly rent to his parents.

However, that could change if she decides to start his own business- she has talked to his bank and was offered a $18,000 line-of-credit at a 7.50% annual rate. She believes that, if needed, she can renegotiate the line-of-credit to $30,000, but maybe with an 8.25% interest rate. Another option is to advertise more aggressively. Valeria is thinking about renting a billboard for $550 per month at a busy corner in town (the initial sign would have a $2,000 upfront cost). With the billboard, Valeria anticipates his projections getting boosted by 50% (same fee percentages) over the next decade. There is also the option of buying the billboard outright for $22,000. Valeria believes the billboard will last ten years with yearly maintenance of $1,200- she isnt sure how expensing an asset such as this works.

Valeria isnt great with projections and numbers, so she is asking you for help in deciding if this business is lucrative enough to pursue. She is also wondering about the importance about maintaining accurate records in general. She doesnt really know much about accounting, so she wants some quick advice on journal entries, T-accounts, and the like. Valeria is thinking of one final consideration- bringing in a business partner who is willing to cover the costs of the billboard in exchange for a 25% share in his business. Her friend, Nima studied accounting and she would be willing to give him a 33.3% share if he took care of all accounting/finance tasks along with the billboard. Valeria hasnt mentioned this idea to him yet- she wants your thoughts first.

Can you provide the journal entries and income statement?