[curiouskjj]

Assignment Type: Individual Project Deliverable Length: 2-3 paragraphs
Points Possible: 125 Due Date: 9/9/2006 11:59:59 PM


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 posted in homework help, but no response. This is what I have figured out so far, but I know the net income is between 6-7K. I am just lost. Thanks for your help.

Monthly income = service revenue ($14,300) + monthly revenue ($2,100) +
acc'ts payable ($3,800) + unearned service revenue ($6,700) = $26,900

Monthly expenses = salary ($3,400+ new mgr $3,000) + utilities ($900) +
monthly expenses ($2,750) = $10,050

Net income = $26,900 - $10,050 = $16,850 x 20 = $337,000 = max
price (?)
Ending capital = capital ($137,400) + Furn/fix/equip ($151,300) = $288,700
= min price (?)

Average of min & max = $312,850 for offer...

Tell me where I am wrong please.

[CaptainForest]

I posted in homework help, but no response. This is what I have figured out so far, but I know the net income is between 6-7K. I am just lost. Thanks for your help.

You did? Where?

You have made a total of 3 posts, including this one.

The other 2 posts were on the same thread, which both I and Curlyben posted answers to. (Regarding LL Sams vs. Melinda Garcia)

As for this, the second question you have asked…

Where have you gone wrong?

Well, first, in your calculation of Revenue. Service Revenue + the extra $2,100 should be the ONLY things included. The other 2 shouldn't be.

Your expenses. In the trial balance you posted, it is incomplete. You have no numbers for Rent Expense, Depreciation, etc.

Does the question give you more information? Or are you to assume that Depreciation, Rent, Office Supplies expense are all included in the 2,100 amount? I would bet no.

However, if it is all included, then your expense calculation of $10,050 is correct.

So according to these numbers (which I think are wrong, since you need depreciation, etc.)…

Total Revenue: 14,300 + 2,100 = 16,400
Total Expenses: 10,050
Net Income Per Month = 6,350


What are “you” willing to pay to buy this company? At most, 20 times the monthly net income. So, at most, you are willing to pay 6,350 x 20 = $127,000

What is the minimum he is willing to sell his company for? His ending capital.

So, what is his ending capital?

His capital is 137,400. Less the 2,000 in drawings, put plus the November Net Income of 6,350.

So, the minimum he is willing to sell his business for is $141,750

Hmmm, these numbers don't seem to make sense.

What are all the liabilities? What is the depreciation expense? Because there has to be some.

Please, post back with some answers.