I have no clue where to start with this, can someone help and explain this to me please?
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 tell me how to figure this out? I am so lost when it comes to accounting.
The net income of Simon and Hobbs, a department store, decreased sharply during 2000. Carol Simon, owner of the store, anticipates the need for a bank loan in 2001. Late in 2000, Simon instructs the store's accountant to record a $10,000 sale of furniture to the Simon family, even though the goods will not be shipped from the manufacturer until January 2001. Simon also tells the accountant not to make the following December 31, 2000 adjusting entries:
Salaries owed to employees: $900
Prepaid insurance that has expired: $400
Why is Simon taking this action? Is her action ethical? Give your reason, identifying the parties helped and the parties harmed by Simon's action.
To compute the possible price you would pay for the business, you need to calculate the monthly net income first.
1. Start by preparing an adjusted trial balance by including the effects of the monthly revenues and expenses mentioned in the question. Add the monthly revenues of $2,100 and expenses totaling $2,750 to the respective revenue and expense accounts.
Adjusted Trial Balance:
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………… 16,400 (14,300 + 2,100)
Rent expense……………
Salary expense………… 6,400 (3,400 + 3,000)
Utilities expense……… 900
Depreciation expense
Supplies expense……
2. Calculate the monthly net income by subtracting the total monthly expenses from the total monthly revenue:
Monthly Net Income = Total Monthly Revenue - Total Monthly Expenses
= $16,400 - ($6,400 + 900)
= $16,400 - $7,300
= $9,100
3. To compute the possible price you would pay for the business, multiply the monthly net income by 20 (since the information states that the most you would pay for the business is 20 times the monthly net income):
Possible Price = Monthly Net Income x 20
= $9,100 x 20
= $182,000
Therefore, the possible price you would pay for the business is $182,000.
To compute the least amount O'Henry will take for the business, you need to determine his ending capital as stated in the trial balance.
Ending Capital = Benjamin O'Henry, capital
= $137,400
Therefore, the ending capital is $137,400.
Considering that the possible price you would pay for the business (based on the monthly net income) is higher than the ending capital O'Henry will accept, you should offer O'Henry at least the ending capital amount of $137,400. This ensures that O'Henry will accept the offer, and it also allows you to acquire the business at a reasonable price.