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# prepare & analyze financial statements

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Details: 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.

Objective: Prepare an Income Statement, Owner's Equity Statement, and Balance Sheet.

#### Solution Preview

Assets \$
Cash 9,700
Accounts Receivable 7,900
Prepaids 2,600
Furniture Fixtures & Equipment 151,300
Accumulated Depreciation 15,600
Total Assets 155,900

Liabilities
Accounts Payable 3,800
Salary Payable -
Unearned Service Revenue 6,700
Total Liabilities 10,500

Owners Equity
Benjamin O'Henry, Capital 137,400
Benjamin O'Henry, Withdrawls 2,000
Net ...

\$2.19