Reference no: EM132403449
You have worked contentedly for several years as a Certified Public Accountant at a well-respected firm in your city called Accurate Accounts. The owner, Anna Banks, who has operated as a sole proprietor for the past 30 years, advises you that she intends to retire at the end of this year. She has long been impressed with your work, and with the work of one of your colleagues, a fellow CPA, Penny White, with whom you get along well, and have an excellent professional and personal relationship.
Ms. Banks advises you that she is willing to allow you and Penny to take over the business at her retirement and to continue using the name Accurate Accounts. This is a well rated company, with excellent name recognition, and an existing client base. Penny states that she would like to remain as an employee, but it not comfortable running a business. Ms. Banks then offers you the opportunity to own the business, and after reviewing your financial situation, you agree to take over the business. At this time, Ms. Banks advises you that she has always run the business as a sole proprietorship, and she offers it to you as such. You purchase 100% of the company, including "business assets, inventory, equipment, and assets, as well as liabilities, known and unknown."
Eighteen months have passed since you assumed ownership of Accurate Accounts and maintained it as a sole proprietorship. A client schedules a meeting with you to discuss his taxes completed by Accurate Accounts two years before. During the meeting, you recognize that an error was made by Penny White, who is still your employee, while the company was owned by Ms. Banks. This error resulted in a loss of $160,000 to the client, which the client is now asking you, as the sole proprietor of Accurate Accounts, to repay. Your current liquid assets as a business are $60,000, while your personal property and real estate are valued at $500,000.
- Analyze and explain what can be done under your current organizational structure to formulate a resolution to this problem?
- Elaborate on the advantages and disadvantages of your status as a sole proprietor
- Determine if Penny White still being employed is significant
- Discuss whether you have any recourse against Ms. Banks.