You and your friend Greg Kommens decide that you can benefit from joining your bakery with his cinnamon roll shop. In the first two parts of this problem, you need to answer some questions about joining forces to create a new business. In the third part of the problem, you will need to prepare financial information following the first year of operations of your new business.

Part A.

Greg has operated his shop for 2 years. He buys coffee from a local supplier and bakes the cinnamon rolls in-house. Your business consists of catering events and selling fine mixers. The plan is for you to use the premises Greg currently rents to give you an opportunity to display your cakes and demonstrate the mixers that you sell. You will also hire, train, and supervise staff to bake cookies and muffins sold in the shop. By offering a greater variety of baked goods, both of you would benefit. Another advantage is that the coffee shop will have one central location for selling the mixers. However, you want to have a better understanding of his growth, so you ask to see is balance sheets for the past two years.

His comparative balance sheets are as follows:

Required part A

1. Prepare a horizontal analysis of the balance sheet data for Greg's' Cinnamon Rolls, using 2020 as a base. (If amount and percentage are a decrease show the numbers as negative, e.g. -55,000, -20% or (55,000), (20%). Round percentages to 1 decimal place, e.g. 12.1%.)
2. Prepare a vertical analysis of the balance sheet data for Greg's' Cinnamon Rolls for 2021

Greg's Cinnamon Rolls
Horizontal Analysis
	2021	2020	Amount	Percentage
Assets
Current Assets	10,360	8,602	1,7580	20.4%
Property, Plant, and Equipment (net)	2,500	2,256	244	10.8%
Other Assets	1,480	1,782	(302)	(16.9%)
Total Assets	14,340	12,640	1,700	13.4%
Liabilities and Stockholders' Equity
Current Liabilities	3,290	3,390	(100)	(2.9%)
Long-term liabilities	1,470	1,300	170	13.1%
Stockholders equity	9,580	7,950	1,630	20.5%
Total liabilities and stockholders' equity	14,340	12,640	1,700	13.4%

Greg's Cinnamon Rolls
Vertical Analysis
	2021	Percentage
Assets
Current Assets	10,360	72.2%
Property, Plant, and Equipment (net)	2,500	17.4%
Other Assets	1,480	10.3%
Total Assets	14,340	100%
Liabilities and Stockholders' Equity
Current Liabilities	3,290	22.9%
Long-term liabilities	1,470	10.3%
Stockholders equity	9,580	66.8%
Total liabilities and stockholders' equity	14,340	100%

Part B

The current market values of the assets of both businesses are as follows.

Gregs Cinnamon Rolls Your Business

Cash $9,500 $11,650

Accounts receivable 210 985

Inventory 650 2,800

Equipment 2,500 1,850*

Other Assets 1,480 840

*you decided not to buy the delivery van considered in level 8.

Combining forces will also allow you and Greg to pool your resources and buy a few more assets to run your new business venture.

Greg and you then meet with a lawyer and form a corporation on November 1, 2021, called Sunrise Bakery Inc. The articles of incorporation state that there will be two classes of shares that the corporation is authorized to issue: common shares and preferred shares. They authorize 100,000 no-par shares of common stock, and 10,000 no-par shares of preferred stock with a $0.50 noncumulative dividend.

The assets held by each of your businesses will be transferred into the corporation at current market value. Greg will receive 14,340 common shares, and you will receive 18,125 common shares in the corporation.

Therefore, the shares have a fair value of $1 per share.

You and Greg are very excited about this new business venture. However, you have the following questions:

1. Gregs dad and your parents are interested in investing $5,000 each in the business venture. You are thinking of issuing them preferred shares. What would be the advantage of issuing them preferred shares instead of common shares?
2. Your lawyer has sent you a bill for $750.When you discussed the bill with her, she indicated that she would be willing to receive common shares in our new corporation instead of cash for her services. You would be happy to issue her shares, but youre a bit worried about accounting for this transaction. Can you do this? If so, how do you determine how many shares to give her?

Required part B

1. Answer the questions.
2. Prepare the journal entries required on November 1, 2021, the date when You and Greg transfer the assets of your respective businesses into Sunrise Bakery Inc.
3. Assume that Sunrise Bakery Inc. Issues 1,000 $0.50 noncumulative preferred shares to Gregs dad and the same number to Your parents, in both cases for $5,000. Also assume that Sunrise Bakery Inc. issues 750 common shares to its lawyer. Prepare the journal entries for each of these transactions. They all occurred on November 1.
4. Prepare the opening balance sheet for Sunrise Bakery Inc. as of November 1, 2021, including the journal entries in (B) and (C) above.