Accounting Decision Case

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Review Decision Case 1 (World.com) attached. Analyze the data presented in the case scenario and address the following questions:

  1. Assume that the most you would pay for the business is 20 times the monthly net income you could expect to earnfrom it. Compute this possible price.
  2. Nicholas states that the least he will take for the business is an amount equal to the business’s owner’s equity balance on January 31. Compute this amount.
  3. Under these conditions, how much should you offer Nicholas? Give your reason.

Accounting Decision Case
•Decision Cases Case 1. Lee Nicholas hasbeen theowner andhasoperated World.com Advertising sinceits beginning 10years ago.Thecompany hasprospered. Recently,Nicholasmentioned thathe would sellthebusiness fortheright price. Assume thatyouareinterested inbuying World.com Advertising. Youobtain themost recent monthly trialbalance, whichfollows. Revenues andexpenses varylittlefrom month to month, andJanuary isatypical month. Yourinvestigation revealsthatthetrial balance does not include monthly revenues of$3,800 andexpenses of$1.100. Also,ifyou were tobuy World. comAdvertising, youwould hireamanager soyou could devote yourtimetoother duties. Assume thatthisperson wouldrequire amonthly salaryof $.1′,000. WORLD.COM ADVERTISING Trial Balance J3UItlC)’ .u, 2012 Account Title Cash Accounts receivable Prepaid exreoses ” Building Accumulated depreciation . Accounts payable Salary payable Unearned servicerevenue Lee Nicholas, Capital Lee Nicholas, Wuhdrawals Service revenue Balance Debit Credit – _. . $ 9.700 14,100 2,60(1 121,300 ; 68,60013,000 56,700 110,400 9,000 Rene expense Salary expense Utilities expense Depreciation expense Supplies expense “- —O~l~~~~ .=_ 3,400 900 $261,000 $261,000 RequIrements 1. Assume thatthemost youwould payforthebusiness is20 rimes themonthly netincome you GOuld expect toearn from it.Compute thispossible price. 2. Nicholas statesthattheleast hewill take forthe busine ssisan amount equaltothe busi- ness’s owner’s equitybalance onJanuary 31.Compute thisamount. 3: Under theseconditions, howmuch should youoffer Nicholas? Giveyour reason. (Challenge) Case 2. One year a!i0.Tyler Stasney founded SwiftClassified Ads.Stasney remembers thatyou took anaccounting coursewhileincollege andcomes toyou foradvice. Hewishes roknow how much netincome hisbusiness earnedduring thepast year inorder todecide whether to keep thecompany going.Hisaccounting recordsconsistofthe T-accounrs fromhisledger, which wereprepared byanaccountant whomoved toanother dry.Theledger atDecember 31 follows. Theaccounts have not been adjusted. Stasney indicates thatatyear-end, customers owehim$1,600 foraccrued servicerev- enue. These revenues havenot been recorded. During[heyear, Stasney collected $4,000ser- vice revenue inadvance fromcustomers, butheearned only$900 ofthat amount. Rent expense forthe year was$2,400, andheused up$1,700 ofthe supplies. Stasneydetermines The Adjusting Process ,er Assignment2:Decision Case-World. com Review Decision Case1(World. com)onpage 186inchapter 3.Analyze thedata presented in the case scenario andaddress thefollowing questionsinyour initial post: 1. Assume thatthemost youwould payforthe business is20 times themonthly netincome you could expect toearn from it.Compute thispossible price. 2. Nicholas statesthattheleast hewill take forthe business isan amount equaltothe business’s owner’sequitybalance onJanuary 31.Compute thisamount. 3. Under theseconditions, howmuch should youoffer Nicholas? Giveyourreason.

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