Armand Zaharias has a personal net worth of $1,346,000, including a $140,000 equity interest in the partnership. Nick Liras has a personal net worth of $893,000, including the same equity interest in the business as his partner. The partners have kept only a moderate equity base of $280,000 in the business, with earnings being taken out as partner withdrawals. They wish to limit their risk exposure and are considering the corporate form.
a. What is their liability now for the business? What would it be under the corporate form?
b. Will creditors be more or less willing to extend credit with a change in organization form?
– The Loann Le Milling Company is going to purchase a new piece of testing equipment for $28,000 and a new machine for $53,000. The equipment falls in the three-year property class, and the machine is in the five-year class. What annual depreciation will the company be able to take on the two assets?