Phil Murphy liked bikes. During a recent period of unemployment, he decided to turn his hobby into a business by opening: FASTER BIKE SHOP where he both would sell and repair bikes. Phil opened up an account at the local bank for FASTER BIKE SHOP and deposited all of his retirement money, $20,000, into the business. His friend, Sue Long, gave Phil a two-year lease on a building she owned for Phil to use as his bike shop for $12,000. To receive such a good deal on rent, he was required to pay the $12,000 up front. In addition, Phil bought some store fixtures and bicycle repair equipment for $10,000. He expected these to last for 5 years before they needed to be replaced. Phil spent $2,700 for hand tools. Because of heavy use Phil expected to need to replace the hand tools in 3 years. To get the business started Phil advertised heavily in the local newspaper. He spent $5,000 advertising Faster Bike Shop in the first month, including the grand opening. He spent another $2,000 advertising bike repair services in his local area in neighborhood newsletters and at grocery stores. At the end of his first year of business, FASTER BIKE SHOP had been paid $80,000 for bikes Phil sold. The shop was also owed $10,000 by customers who purchased bikes on account (credit). FASTER BIKE SHOP had also been paid $26,000 for repair work. In addition to the things described above, FASTER’s check book showed the following payments in the first year of business: Purchase of bikes $60,000 Wages for a clerk/repair assistant 12,000 Insurance for two (2) years 4,000 Utilities 3,000 Supplies 1,250 Miscellaneous expenses 2,000 At the end of the year, Phil told you that there were bikes that cost $15,000 left in inventory, about $250 of supplies left and $12,750 in the checking account. The utility bill for the last month had not yet arrived, but Phil expected it to be about $300 and Faster Bike Shop still owed $700 on the purchase of the bikes. His employee was also due $2,000 in salaries, but wasn’t scheduled to be paid until next week. Questions to answer: 1. If you were Phil, how would you organize the business (Sole Proprietorship, Partnership, C Corporation, or LLC)? 2. Discuss each business type and the pros and cons of organizing as each.
FASTER BIKE SHOP
Phil Murphy liked bikes. During a recent period of
Phil opened up an account at the local bank for FASTER BIKE SHOP and deposited all of his retirement money, $20,000, into the business. His friend, Sue Long, gave Phil a two-year lease on a building she owned for Phil to use as his bike shop for $12,000. To receive such a good deal on rent, he was required to pay the $12,000 up front. In addition, Phil bought some store fixtures and bicycle repair equipment for $10,000. He expected these to last for 5 years before they needed to be replaced. Phil spent $2,700 for hand tools. Because of heavy use Phil expected to need to replace the hand tools in 3 years.
To get the business started Phil advertised heavily in the local newspaper. He spent $5,000 advertising Faster Bike Shop in the first month, including the grand opening. He spent another $2,000 advertising bike repair services in his local area in neighborhood newsletters and at grocery stores.
At the end of his first year of business, FASTER BIKE SHOP had been paid $80,000 for bikes Phil sold. The shop was also owed $10,000 by customers who purchased bikes on account (credit). FASTER BIKE SHOP had also been paid $26,000 for repair work.
In addition to the things described above, FASTER’s check book showed the following payments in the first year of business:
|
Purchase of bikes |
|
$60,000 |
|
Wages for a clerk/repair assistant |
|
12,000 |
|
Insurance for two (2) years |
|
4,000 |
|
Utilities |
|
3,000 |
|
Supplies |
|
1,250 |
|
Miscellaneous expenses |
|
2,000 |
At the end of the year, Phil told you that there were bikes that cost $15,000 left in inventory, about $250 of supplies left and $12,750 in the checking account. The utility bill for the last month had not yet arrived, but Phil expected it to be about $300 and Faster Bike Shop still owed $700 on the purchase of the bikes. His employee was also due $2,000 in salaries, but wasn’t scheduled to be paid until next week.
Questions to answer:
1. If you were Phil, how would you organize the business (Sole Proprietorship,
2. Discuss each business type and the pros and cons of organizing as each.
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