plz answer two questionsin details and explain. each part thanks. its my exam
1. Jin is an accountant. Nuankae is a sous chef at asuccessful Spanish restaurant on E. 68th Street, called“Que Lastima.” Jin and Nuankae (who likes to be called“Kae”) both enjoy Louisiana cuisine and met at a cookingclass. They decide to open a small restaurant innorthern Manhattan, called “Kae-Jin Cookin.’”
Jin and Kae meet with youto seek advice on how to establish their business. Theydo not expect to earn a profit in the first year or two ofoperation. Their principal expenses will be rent,salaries and food purchases. They expect to requireabout $200,000 to cover expenses over income for the first year ofoperation. Jin has $100,000 available; Kae$50,000. They can make up the $50,000 shortfall eitherthrough a bank loan or from Kae’s aunt, Dahlia, a retired ChiefOperating Officer for the Kraft Heinz Company. Dahlia iswilling to provide these funds as either a loan orinvestment. Jin believes that the bank which is willingto make the loan may require personal guarantees from Jin andKae.
Kae plans to quit her jobat Que Lastima and can devote 100% of her time to managing therestaurant. Jin wants to continue working as anaccountant but is willing to handle the restaurant’s financialaffairs and offer recipes.
Jin and Kae and ask youhow they should proceed. Write a short memorandumaddressing the following:
A. Whatform of business should they adopt?
B. Whatsteps should they take to establish such an entity?
C. Howshould they obtain the funding necessary for their first year ofoperation?
D. Howshould they manage the business, i.e. who should handle whatresponsibilities in operating the business?
E. Outline the principal terms of an agreement which reflects theintentions of Jin, Kae, and any other participants or investors, onthe issues of ownership, management, compensation, sharing ofprofits and losses, transfer of interest, dissociation andbuy-out.
2. You aretasked with conducting an audit of the business of “Kae-Jin Cookin”after its first year of operation. You discover thefollowing:
A. A filecontaining letters from Overpriced Properties, LLC, therestaurant’s landlord, seeking a fifty percent increase in rent fornext year. You ask Kae about this and she tells you thatshe handled the negotiations on behalf Kae-Jin Cookin for theoriginal lease and believes she can negotiate a new lease for onlya twenty-five percent increase since she is a ten percent owner ofOverpriced Properties, LLC. You ask Jin about this andhe tells you he did not know about Kae’s ownership in OverpricedProperties, LLC. He tells you he is not overly concernedbecause Kae cannot commit Kae-Jin Cookin to a new lease without hisconsent.
B. Jin hasmade transfers of “Kae-Jin Cookin” funds to a company called GymsR’ Us, LLC. You ask Jin about this and he tells youthese were short term loans (at zero percent interest) to a localfitness franchise in which he has personallyinvested. He says he expects that all amounts will berepaid before yearend. You learn from Kae that she knowsnothing about these loans.
C. A fileentitled “Trademarks” which reflects that Kae has made a filingwith the U.S. Patent and Trademark Office for the trademark“Kae-Jin Cookin”. She has made the filing in her ownname. You ask Jin about this and he tells you he knowsnothing about it.
D. Jintells you he has recently been in a car accident in which his carwas heavily damaged. He says he drove to northern NewJersey to meet with a prospective provider of vegetables for therestaurant. After the meeting, Jin drove to Philadelphiato meet an old college friend. The accident occurred insouthern New Jersey just before the border withPennsylvania. Jin advises you that he expects “Kae-JinCookin” to reimburse him for the damage to his car.
E. In the restaurant’s tax filings, Jin has characterized allrestaurant employees as “independent contractors.” Youask 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 issuesyou see arising from the facts in paragraphs A-E above, explainingany potential breaches of obligations or potential liabilitiesregarding (i) the business and (ii) Jin and Kaeindividually. Your answers should be based on the formof business you selected in Essay No.1.
