Alyssa who is currently operating a machine shop is considering Dindin, an excellentemployee, to be her partner. Unfortunately, Dindin could not afford to invest cash of P 500,000which Alyssa needs to expand her business. As consultant, you asked Alyssa to answer somequestions before giving an advice on whether Dindin should be taken in as partner.What is your present annual net income?Can you avail of a loan of P 500,000?P 450,000YesLand Bank @ 17%P 450,000What bank and what is the interest rate?With the new equipment, how much additional income will it generate?In how many year are you going to pay the loan?How much are you willing to pay Dindin as salary or profit?5 yearsP 160,000You drafted the following informaticand filed it up:Net income with the new equipmentLess (Minus) interest charge on loan liabilityNet income after the interest chargeLess (Minus) share of Dindin in the profitsShare of Alyssa in the net incomeNet income the business is currently earningNet advantage (disadvantage) of forming a partnership

Needs to analyze the decisions of partnering with Dindin in the existing business of Alyssa.

Answered: You drafted the following information…

You drafted the following information and filed it up: Net income with the new equipment Less (Minus) interest charge on loan liability Not in fter th e interest charg

Excel Applications for Accounting Principles

4th Edition

ISBN:9781111581565

Author:Gaylord N. Smith

Publisher:Gaylord N. Smith

ChapterMB: Model-building Problems

Section: Chapter Questions

Problem 9M

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Question

Alyssa who is currently operating a machine shop is considering Dindin, an excellent
employee, to be her partner. Unfortunately, Dindin could not afford to invest cash of P 500,000
which Alyssa needs to expand her business. As consultant, you asked Alyssa to answer some
questions before giving an advice on whether Dindin should be taken in as partner.
What is your present annual net income?
Can you avail of a loan of P 500,000?
P 450,000
Yes
Land Bank @ 17%
P 450,000
What bank and what is the interest rate?
With the new equipment, how much additional income will it generate?
In how many year are you going to pay the loan?
How much are you willing to pay Dindin as salary or profit?
5 years
P 160,000
You drafted the following informatic
and filed it up:
Net income with the new equipment
Less (Minus) interest charge on loan liability
Net income after the interest charge
Less (Minus) share of Dindin in the profits
Share of Alyssa in the net income
Net income the business is currently earning
Net advantage (disadvantage) of forming a partnership

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Follow-up Question

Based on your computations, will you advise Alyssa to put up a partnership and borrow cash for
the new equipment? Why or why not?

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