In March 2005, Rebecca Park identified an excellent business opportunity in Philadelphia: renting portable Global Positioning Systems (GPS) to joggers, bikers, or walkers in Fairmount
Park. Also, Park had the idea of stocking her rental “store” with sundries (e.g., water bottles, energy bars, and anti-blister cream) that she could sell at a significant mark-up.
Park prepared a business plan and approached Anil Girard (one of the Philadelphia Girards), who she believed would invest in this new venture. Girard agreed to invest as a silent partner and allow Park to run the business. On April 1, 2005, Girard invested $200,000 and Park put up
$50,000 to purchase 25,000 shares in the new company, which was to be called Pathfinder GPS
Corporation. The par value of the shares was $1.00 (1).1 Lacking the funds for her initial investment, Park borrowed the $50,000 from the Royal Bank of Philadelphia on April 1, using her parent’s house as collateral (2). On April 2, Park hired a lawyer to take care of matters related to incorporating the business. Because this was a fairly simple organization, the legal fees were only $5,100 (3).
Then, Park set out to find a building near the park to house the business. She found an abandoned pizza parlor at the intersection of Parkside Ave and Girard Ave (near the park entrance) that she could renovate and use as her rental facility. She purchased the building for
$155,000 on April 7. The purchase documents allocated $103,000 to the land and only $52,000 to the building, due to its age and run-down appearance. A mortgage of $124,000 was secured from Royal Bank for the purchase, with the remaining $31,000 paid in cash (4). Park felt that some renovation work would extend the life of the building to 25 years (with a $10,000 salvage value). She ordered the renovation work, costing $33,000, to begin immediately. The work was completed on May 25, at which time she paid in cash the amount owed for the renovations (5).
On June 2, Park purchased 240 GPS units at an average cost of $500 per unit from Cabela’s.
Because Pathfinder was a new business, Cabela’s required her to pay the full balance in cash at the time of purchase. Park expected that the units would only last for two years, at which time they would have no remaining value (6). On June 15, Park ordered $2,000 of sundries inventory to be delivered on June 30. Park purchased the inventory “on account,” which meant she had up to 30 days after delivery to pay the supplier (7).
With the business set to open the next day, Park was very busy on June 30. She paid $700 for a site license to use Garmin mapping software in the GPS units. The license would have to be renewed annually to keep the software up to date (8). She also signed a contract with a local
The numbers in parenthesis are transaction numbers.
This case is a slightly modified version of one originally prepared by Professor Brian Bushee. It was prepared as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. This case is a modification and extension of the Thumbs-Up Video case in Accounting for Managers (1999) by William Bruns, Jr.
Pathfinder GPS Corporation
advertising agency to provide various forms of advertising for a period of one year. She paid
$8,000 upfront for advertising through June 2006 (9). Park borrowed $5,000 from Pathfinder at
10% interest, with the principal and interest due in a lump sum on June 30, 2006. She needed the cash to make a payment on the Royal Bank loan that had funded her purchase of Pathfinder stock
(10). Finally, Park hired two employees, Linda Carlyle and Charlotte Cafferly, to run the shop.
They both signed employment contracts promising each salaries of $32,000 per year (11).
On the night of June 30,…