1-Natalie Cobol spent much of her childhood learning the art of cookie-making fr
ID: 2431779 • Letter: 1
Question
1-Natalie Cobol spent much of her childhood learning the art of cookie-making from her grandmother. They passed many happy hours mastering every type of cookie imaginable and later creating new recipes that were both healthy and delicious. Now at the start of her second year in college, Natalie is investigating various possibilities for starting her own business as part of the requirements of the entrepreneurship program in which she is enrolled A long-time friend insists that Natalie has to somehow include cookies in her business plan. After a series of brainstorming sessions, Natalie settles on the idea of operating a cookie-making school. She will start on a part-time basis and offer her services in people's homes. Now that she has started thinking about it, the possibilities seem endless. During the fall, she will concentrate on holiday cookies. She will offer individual lessons and group sessions (which will probably be more entertainment than education for the participants) Natalie also decides to include children in her target market. The first difficult decision is coming up with the perfect name for her business. In the end, she settles on "Cookie Creations" and then moves on to more important issues Instructions (a)What form of business organization-proprietorship, partnership, or corporation-do you recommend that Natalie use for her business? Discuss the benefits and weaknesses of each form and give the reasons for your choice.(5 marks) (b)Will Natalie need accounting information? If yes, what information will she need and why? How often will she need this information? .(5 marks) (c)ldentify specific asset, liability, and owner's equity accounts that Cookie Creations will likely use to record its business transactions. .(5 marks) (d)Should Natalie open a separate bank account for the business? Why or why not?.(5 marks) Marking scheme:(a-d) 1) Relevance of the answer to the question 2 marks 2) Completeness of answer 3) Organization and logic answer -2 marks -1 markExplanation / Answer
Answer part (a):
Propietorship business benefits: Natalie need not have to fulfill many compliances i.e. tax compliances or legal compliances.
Proprietorship business weaknesses: Natalie will have to arrange for financing her proprietorship business on her own. In the early stages of setup of business she might have to do all the work on her own due to shortage of funds/ capital.
Partnership business benefits: Natalie can ask for capital contribution from her partner and need not worry about financing of her business. Also in the early stage of setup of business, the partner can be a helping hand to her and Natalie could concentrate more towards making new types of cookies
Partnership business weakness: Natalie will have to share profits with her partner. In case the partner contributes the entire part of capital, Natalie might also have to take decisions after taking approval from her partner which might not be the case in a proprietorship business.
Corporation business benefits: In case of corporation, Natalie can raise funds by selling shares of her company. She need not worry about fund raising at all and she can concentrate towards being an expert in making variety of cookies and marketing the same, brand building etc.
Corporation business weakness: In case of a corporation, Natalie will have to fulfil a lot of tax compliances and legal compliances. Also Natalie will have to pay dividends to shareholders out of profits earned in order that they do not sell the shares of the corporation.
Answer part (b):
Natalie will need accounting information like working capital employed, inventory turnover, break even point, profit margin etc. She will need this information on a more frequent basis in the early stages of her business i.e. on a monthly basis so that she can monitor the performance of her business from time to time.
Answer part (c):
Assets: Raw materials used to make cookies, equipments used to knead the dough and bake the cookies, furniture that would be placed in the kitchen/ baking room, air conditioner etc.
Liabilities: Suppliers of raw materials, taxes payable, expenses payables like electricity expense payable, rent payable etc.
Owner’s equity accounts: Capital account and reserves and surplus
Answer part (d):
In case of a proprietorship business, Natalie need not open a new bank account, she can operate her personal account. But in case of a partnership business or corporation business, Natalie need to open a separate bank account in the name of the partnership business/ the company so that all the payments and receipts would be made in the name of the business organisation.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.