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    Which company is better to purchase and why?

    A company B company
    assets 10,000 25,000
    cash 2,000 4,000
    acct rec 50,000 80,000
    equipment 11,000 18,000
    supplies 22,000 34,000
    total assets 95,000 161,000
    liab &equity
    Acct Payable 21,000 38,000
    bank loan 49,000 68,000
    equity 25,000 55,000
    total 95,000 161,000

    other data
    personal withdrawals 40,000 38,000
    owner's investment 16,000 32,000
    capital balance 30,000 12,000

    © BrainMass Inc. brainmass.com December 24, 2021, 4:59 pm ad1c9bdddf
    https://brainmass.com/business/finance/finance-accounting-fundamentals-20222

    SOLUTION This solution is FREE courtesy of BrainMass!

    Hi there,

    Company A is better for the following reasons:
    1. Their total liabilities are 70K compared to 106K. This means that they will be less encumbered in the future by interest payments and will have more flexibility as far as cash flow is concerned.
    2. Their accounts receivable is only 50K compared to 80K. Even though A/R is a current asset, there is no guarantee that this A/R will be collected.
    3. Company A's equity is only 25K compared to 55K for Co. B. This means that the purchase price will likely be lower for Company A.
    4. Note that even though Company B has a higher amount of cash on hand, it is not significant enough to warrant purchasing Co. B over Co. A.
    5. Accounts payable for company A is much lower than for company B.
    6. Personal withdrawls are pretty close, so this should not be a factor in the decision.

    To conclude, I would purchase company A simply because I believe that you could purchase it for a lower price and you would assume less debt as the new owner.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    © BrainMass Inc. brainmass.com December 24, 2021, 4:59 pm ad1c9bdddf>
    https://brainmass.com/business/finance/finance-accounting-fundamentals-20222

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