Scenario is: My partnership bought property w/ existing business. Property consist of a house, land, furniture & fixtures to run the business, including the existing clients. Property will be used 100% for the business, we will get my own business permit & licenses. Cost of property bought is $800K, $700K was financed, we put in $100K as down payment. Business has a guaranteed gross income of at least $20K a month.
Now here's the scenario that is confusing me. Previous owner & we went into agreement that we will pay him extra $50K for the business he lost. It is payable in 12 months. We am using Cash basis of accounting method.
Questions:
- How would I account the k when I set-up my book? Is it long-term liability? Organization cost? or Start-up cost? Will it reduce our beginning capital or equity? Should it become part of rhe property's purchase cost? Please give me the debit/credit entry.
- How would I account the monthly payment for the K. Is it an expense against the long-term liability? Decrease in Asset if it is going to be part of purchase cost?
- At the end of the year, lets say 6 months after. Out of K, we already paid K and we still owe K. And its time to file the partnerships tax return. Where is my amortization cost will be based? On the K or on the K? Can I just expensed the K and amortized K and just recapture the expensed amount on next years Income Tax?
This is really confusing. Pleas help me understand what is going on in our balance sheet & income statement.
Thanks, Jeanette