The Ergo Leather Sock Company - Case Study - Accounting and Finance Assignment Help

Assignment Task:

Task:

Background
Sam is a professional accountant; and in this capacity he has had the opportunity to work all around the world. In 2015 he was working in the United Arab Emirates. While there, he had a chance to visit an event called the “Global Village” (GV) – the event is like a small World’s Fair, an exhibition where many countries present their cultures, foods, handicrafts, and key industries. When visiting one pavilion at GV, he came upon a product he thought would have many uses and a plan was formed. He wanted to import this product to Canada and the US. Sam thought that the feasibility of the plan would depend upon the cost of the item and the cost of transporting the item to North America (freight); if these were low enough the item could be sold at a profit. Thinking about the possibilities, he purchased a pair as a sample unit.

Activities and Operations

In April 2020 Sam decided that this was the correct time to start his long-planned venture to bring “Ergo Sock Savers” to the North American Market. Sam recognized that the place to start was to develop a detailed business plan addressing all aspects of the business. He he realized that he would need help to develop a complete and polished business plan, so he reached out to his friends Neil and Dave who had an established marketing company : “Primera Marketing” (PM)“. They agreed to create a business plan to for Sam’s project. The plan would be used in securing debt and investment capital and would also include a marketing plan and materials; Sam agreed to pay Neil and Dave a fee for creating the plan with his input. Sam called these costs “Business Plan Development Costs.

Required #4– Given the agreed upon FOB method:
1) when does Ergo take ownership of the products purchased?
2) Who pays shipping Costs?
With the completed business plan in hand and the final design, materials and cost agreed upon with the supplier; Sam’s company was ready to begin operations. Over the next few weeks, the following activities took place.

1) Sam secured start-up funding of $500,000 from an investor in return for a 25% ownership of the company
2) Sam also negotiated a $100,000 line of credit from his bank for which he pledged his inventory as security
3) Sam paid a local website hosting company to build a website and procure a domain name on behalf of EE that would enable on-line sales and provide hosting for 5 years a a cost of $5,000, the full amount was paid in cash up front
4) Sam secured a small unfinished office/warehouse commercial building on a rental basis (via a 3-year lease) at a rate of $7,000 per month the first and last month’s rent were required

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