Reference no: EM133186777
Question - While Sina typically despises nagging from his uncle, he did get a potential career opportunity from his yesterday. Cenk, the current owner of the local Spritzy Gas Station, is retiring. Hal, a friend of his, has agreed to buy a 50% share for $300,000 and Sina's uncle is willing to buy the other 50% share for $310,000. However, he will only close the deal if Sina agrees to work at the station for a minimum of two years. Sina's uncle is willing to pay his half of the profits he is entitled to, or 25% of the gas station's annual profit, if Sina's works 30+ hours a week (paid to Sina as bi-weekly salary).
Sina is wondering how his hourly rate may compare to his other options. Hal has insisted that, since he is managing the inventory and fuel supplies, Sina should manage the bookkeeping. Sina knows the accounting basics but isn't sure about some of the intermediate concepts, such as depreciating the fuel terminals. Considering that the terminals are used regularly but business is heaviest in the summer months and December due to the holiday season, Sina is wondering what an appropriate depreciation policy might be. Also, he isn't sure what a depreciation journal entry looks like and how it ties into financial statements. Mahmoud expects to see the 2022 numbers before completing the deal and says the gas station expects to tally up annual revenues of $424,000. The expenses, with the business owners working full-time, are ballparked at 45% of revenues.
In 2021, the revenues totaled $428,600 and expenses were $181,300. For 2023, Hal and Mahmoud have discussed possibly hiring a part-time employee which would allow Sina and Hal to work fewer hours. However, this would push expenses up to about 56% of revenues. Sina is wondering if he should urge his uncle to hire the part-time help, as it would allow his to continue his painting business. With full working hours at the gas station (no part-time employee) and bookkeeping tasks to complete at home, Sina would not continue his art business.
Please Help by providing Financial Analysis and Calculation for All the Parts.
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