Tuesday
December 23, 2014

Homework Help: accounting

Posted by dana on Friday, May 8, 2009 at 1:41pm.

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.

Can someone check my answer and tell me if it's right?
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.

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