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.
- 3 Answers
- 8901 Views
- I also Faced
- E-Mail Answers
Answer Posted / louise
First, because they were not included, I added the $2,100 to
the revenue and $2,750 to expenses. After doing this,
O’Henry’s revenue is $16,400 and total expenses are $7,050.
When I subtracted the total expense ($7,050) from the
revenue ($16,400), I discovered that his net income was only
$9,350.
If I were to purchase the business, then I would take on the
same amounts for revenue, but my expense would include an
additional $3,000 for manager’s salary, which would make my
total expenses total $10,050. Subtracting the total expense
($10,050) from the revenue ($16,400) would give me a net
income of only $6,350.
The most I would pay for the business is 20 times the
monthly net income I expect to earn from it. This can be
shown as 20* $6,350, which equals $127,000. However, O’Henry
will take no least than his ending capital ($144,750).
Being that there is a $17,750 difference between what I
would offer and what he would accept, I would talk to Mr.
O'Henry and show him how I got my figures and see if we
could possibly discuss a lower sales price for the business.
I decided to offer him only $135,875 which is what I
originally would offer him plus half of the difference.
| Is This Answer Correct ? | 14 Yes | 9 No |
Post New Answer View All Answers
Does any one attented HSBC audit compliance test? Please let me know asap. suraj
Is it possible to list only a portion of Equity Shares leaving the balance as unlisted?
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?
Treatment of Government grant and its utilization in P
1) What is the steps of delisting the listed company 2) How to spliting the listed company shares 3) Which way the company should function when it has paidup capital is equal or more than 5,00,00,000/- (I mean which way the company should do it work in the company Act 1956. Is the company have to appoint a CS and and managing director of a any other things which is compulsory for these kind of company which paid up capital is 5,00,000/-
How to analyse the day to day sensex Points or Forex Values?
what is rate of service tax and form no. of service tax ? wt rules of service tax a particuler once .?
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....
Income Tax Department sends cheque for INR 2 Crore as Refund after completion of Assessment for A.Y.2011 - 2012 to a Company. As per IT Return filed for this year I.T. due to Government was INR 60 Lac but was assessed at INR 70 Lac. TDS due to Company was INR 3 Crore which was admitted as INR 2.7 Crore by Government. Government also adjusts Tax dues for A.Y. 2009 - 2010 of INR 40 Lac which was disputed earlier by the Company and Appeal was lying with the CIT. Government pays Interest to the Company amounting to INR 40 Lac. Provision for Income Tax made by the Company in its accounts for F.Y. 2010 - 2011 (A.Y. 2011 - 2012) was INR 50 Lac. What would be the Journal Entry at the time of receipt of Refund of INR 2 Crore from the Government in A.Y. 2014 - 2015 in the books of the Company?
how to solve the problem of sechdule date problem in sap proframme.
when will be appsc exams will held pls give me the dates
STATE & EXPLAIN THE IMPACT OF GLOBAL FINANCIAL CRIS ON CEMENT SECTOR IN INDIA:
what is correct accounting treatment for preliminary exps and pre-operative Expsas per AS 26? or any other applicable AS?
what is mean by tax holiday?
