Question

plz answer two questions in details and explain. each part thanks. its my exam

1. Jin is an accountant.  Nuankae is a sous chef at a successful Spanish restaurant on E. 68^th Street, called “Que Lastima.”  Jin and Nuankae (who likes to be called “Kae”) both enjoy Louisiana cuisine and met at a cooking class.  They decide to open a small restaurant in northern Manhattan, called “Kae-Jin Cookin.’”

Jin and Kae meet with you to seek advice on how to establish their business.  They do not expect to earn a profit in the first year or two of operation.  Their principal expenses will be rent, salaries and food purchases.  They expect to require about $200,000 to cover expenses over income for the first year of operation.  Jin has $100,000 available; Kae $50,000.  They can make up the $50,000 shortfall either through a bank loan or from Kae’s aunt, Dahlia, a retired Chief Operating Officer for the Kraft Heinz Company.  Dahlia is willing to provide these funds as either a loan or investment.  Jin believes that the bank which is willing to make the loan may require personal guarantees from Jin and Kae.  

Kae plans to quit her job at Que Lastima and can devote 100% of her time to managing the restaurant.  Jin wants to continue working as an accountant but is willing to handle the restaurant’s financial affairs and offer recipes.

Jin and Kae and ask you how they should proceed.  Write a short memorandum addressing the following:

A.    What form of business should they adopt?

B.    What steps should they take to establish such an entity?

C.    How should they obtain the funding necessary for their first year of operation?

D.    How should they manage the business, i.e. who should handle what responsibilities in operating the business?

E.     Outline the principal terms of an agreement which reflects the intentions of Jin, Kae, and any other participants or investors, on the issues of ownership, management, compensation, sharing of profits and losses, transfer of interest, dissociation and buy-out.  

2.  You are tasked with conducting an audit of the business of “Kae-Jin Cookin” after its first year of operation.  You discover the following:

A.    A file containing letters from Overpriced Properties, LLC, the restaurant’s landlord, seeking a fifty percent increase in rent for next year.  You ask Kae about this and she tells you that she handled the negotiations on behalf Kae-Jin Cookin for the original lease and believes she can negotiate a new lease for only a twenty-five percent increase since she is a ten percent owner of Overpriced Properties, LLC.  You ask Jin about this and he tells you he did not know about Kae’s ownership in Overpriced Properties, LLC.  He tells you he is not overly concerned because Kae cannot commit Kae-Jin Cookin to a new lease without his consent.

B.    Jin has made transfers of “Kae-Jin Cookin” funds to a company called Gyms R’ Us, LLC.  You ask Jin about this and he tells you these were short term loans (at zero percent interest) to a local fitness franchise in which he has personally invested.  He says he expects that all amounts will be repaid before yearend.  You learn from Kae that she knows nothing about these loans.

C.    A file entitled “Trademarks” which reflects that Kae has made a filing with the U.S. Patent and Trademark Office for the trademark “Kae-Jin Cookin”.  She has made the filing in her own name.  You ask Jin about this and he tells you he knows nothing about it.

D.    Jin tells you he has recently been in a car accident in which his car was heavily damaged.  He says he drove to northern New Jersey to meet with a prospective provider of vegetables for the restaurant.  After the meeting, Jin drove to Philadelphia to meet an old college friend.  The accident occurred in southern New Jersey just before the border with Pennsylvania.  Jin advises you that he expects “Kae-Jin Cookin” to reimburse him for the damage to his car.

E.     In the restaurant’s tax filings, Jin has characterized all restaurant employees as “independent contractors.”  You ask Jin about this and he tells you he did this to save money, mostly to avoiding paying employee benefits, and to avoid liability “if they do something wrong”.  

Write a brief memo to your audit partner outlining the issues you see arising from the facts in paragraphs A-E above, explaining any potential breaches of obligations or potential liabilities regarding (i) the business and (ii) Jin and Kae individually.  Your answers should be based on the form of business you selected in Essay No.1.  

Answer 1

Answer 1A:

They should adopt the partnership business as both of them are investing in the business for its establishment.

Answer 1B:

Steps they should take to establish such an entity:

1. Conduct legal requirement research and decide on whether to hire consultant for incorporating the business or do it on their own.

2. Arrange for the investment in the business either personally or through the particular lenders.

3. Identify the design of the physical facility so as to increase the experience of the customers.

4. Conduct a market research to identify the needs of the customers.

5. Create a promotional and marketing strategy so as to attract the customers.

6. Contract with the suppliers of raw material so as to ensure that the business has continuous production.

Answer 1C:

They can obtain their funding either from Kae’s aunt, Dahilia or from the bank. While obtaining funds they should find out who is charging less interest to them and should take the funds from them.

Answer 1D:

Kae should handle the physical facility of the restaurant and Jin should handle marketing and financing audit responsibilities as he would be outside the facility of restaurant.

Answer 1E:

Intentions of Jin and Kae are that they want to be the owner of the business who would be managing it and would be considered as the partners of the business. If they consider Kae’s aunt as the lender, then she could act as a shareholder of the company until she reaps all of the benefits of the investment.

Answer 2:

Memo:

In paragraph “A”, the property of the restaurant has been overprices by inflating the yearly increment of the property to 50 percent. Moreover, Kae without having the appropriate authority is negotiating on behalf of “Kae-Jin Cookin” restaurant. Jin was also unaware about Kae’s ten percent ownership into the land of the restaurant.

In paragraph “B”, Jin has used the funds of “Kae-Jin Cookin” restaurant for his own benefit without actually consulting with his partner Kae. Thus, Jin’s act of using the business funds for his own use is breaching of the law of the partnership business.

In paragraph “C”, Kae has filed the trademark with the government in her own name without consulting her partner and this is thus a breach of the law of partnership business.

In paragraph “D”, Jin has completed his work that was associated with the business in Northern New Jersey and instead of returning back he drove towards his friend and met with an accident in Southern new Jersey. Since, the trip further to the Northern New Jersey was for personal purpose, the claims of Jin does not fall under the jurisdiction of the business and hence, he is not eligible for compensation

In paragraph “E”, in the restaurant’s tax filings, Jin has characterized all restaurant employees as “independent contractors” so as to avoid the liabilities of paying employee benefits. This is a misrepresentation made by Jin in tax filings.