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Buying Price for the Business

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.

**Computation of "20 x monthly net income"
-include the steps in the computation

**Computation of "O'Henry Ending Capital"
-include the steps in the computation

Your reasoning behind your offer? (e.g. negotiation points, clear decision making process):

Narrative/Creativity - Explain each required component completely and relate how it assists decision makers
***Please note that this assignment should be in your own words. Please paraphrase everything and use the originality verification as a tool to guide you within these requirements.

**KEY FORMULAS TO REMEMBER IN THIS IP:
NET INCOME = REVENUE - EXPENSES
ENDING EQUITY = BEGINNING CAPITAL - WITHDRAWALS + NET INCOME

Solution Summary

This solution contains step-by-step calculations in an Excel file to provide the unadjusted trial balance, net income after buying the business, ending capital, and existing monthly net income. It also provides recommendations behind the offers.

$2.19