Benjamin O'Henry has owned and operated O'Henry's Data
Services since its beginning ten years ago. From all
appearances, the business has prospered. In the past few
years, you have become friends with O'Henry and his wife.
Recently, O'Henry mentioned that he has lost his zest for
the business and would consider selling it for the right
price. You are interested in buying this business, and you
obtain its most recent monthly unadjusted trial balance
which follows:
O'Henry's Data Services Unadjusted Trial Balance November
30, 20XX
Cash……………………………… $9,700
Accounts receivable……………………… 7,900
Prepaid expenses………… 2,600
Furniture, fixtures, & equipment 151,300
Accumulated depreciation $15,600
Accounts payable………… 3,800
Salary payable………………
Unearned service revenue 6,700
Benjamin O'Henry, capital 137,400
Benjamin O'Henry, withdrawals 2,000
Service revenue………… 14,300
Rent expense……………
Salary expense………… 3,400
Utilities expense……… 900
Depreciation expense
Supplies expense……
Total…………………………………………. $177,800 $177,800
Revenues and expenses vary little from month to month, and
November is a typical month. Your investigation reveals
that the unadjusted trial balance does not include the
effects of monthly revenues of $2,100 and monthly expenses
totaling $2,750. If you were to buy O'Henry's Data
Services, you would hire a manager who would require a
monthly salary of $3,000.
The most you would pay for the business is 20 times the
monthly net income you could expect to earn from it.
Compute this possible price. The least O'Henry will take
for the business is his ending capital. Compute this
amount. Under these conditions, how much should you offer
O'Henry? Give your reason. I have the mathimatical part
ok , please give reasons on how much and why I they would
offer him the amount.
Answer Posted / missy
Adjust the trial balance for the under-reported expenses
($2,750) and revenues ($2,100).
This means that revenue for November was 14,300+2100 = 16,400
Expenses was the reported amounts of 3,400 and 900, plus the
under-reported amount of 2,750 for a total of $7,050.
This means that pre-tax income was about 16,400-7050 =
9,350. Multiply this by 12 and you have $112,200 per year.
I would pay 20x November's income of 9350 = 187,000.
Is This Answer Correct ? | 8 Yes | 26 No |
Post New Answer View All Answers
sir i want aao lic exam model question paper
what is rate of service tax and form no. of service tax ? wt rules of service tax a particuler once .?
what is correct accounting treatment for preliminary exps and pre-operative Expsas per AS 26? or any other applicable AS?
what is the abrevation for JJ in form jj
I want to know that , If we called a person for one day for drive our company van or any other purpose. so how it will accounted in our (i.e companies) Books of accounts....
why your choseing bank of america
Can anybody tell when sbh dispatches appointment letters for Clerical for people completed medical and scrutiny of documents on 15/08/09?
STATE & EXPLAIN THE IMPACT OF GLOBAL FINANCIAL CRIS ON CEMENT SECTOR IN INDIA:
Is form 38 mandatory to issue c form in up. thru online mode
STATE THE DIFFERENCE BETWEEN BANKING FIS AND NON BANKING FIS
How does a bank or financial institution calculate COGS? What are the 'direct' costs of a loan or deposit revenue operation?
Is it possible to list only a portion of Equity Shares leaving the balance as unlisted?
I want to validate Customer credit payment with customer invoice, When billing time, the system check the customer credit payment, if customer credit is lesser than customer bill, system should not allow the billing further process. Can I configure in sap
Does provisions need to be subtracted from reserves if net worth is calculated on the basis of share capital based method
i have cleared c.s inter. for the purpose of training i want to know the companies who are providing training of c.s in punjab state.please help me in this.