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    nikki1229's Avatar
    nikki1229 Posts: 3, Reputation: 1
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    #1

    May 4, 2007, 06:39 PM
    Accounting college course
    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.


    MY ANSWER:

    1. First I must adjust the trial balance for the under-reported expenses ($2,750) and revenues ($2,100).

    This means that revenues 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.

    WHAT DO I DO WITH THE 3000 monthly salary?? IS THIS RIGHT
    Clough's Avatar
    Clough Posts: 26,677, Reputation: 1649
    Uber Member
     
    #2

    May 5, 2007, 12:23 AM
    Again, it is important that you read information on the following site first.

    https://www.askmehelpdesk.com/math-s...board-b-u.html

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