Lee Nicholas has been the principal stockholder and has operated World.com Advertising, Inc., since its beginning 10

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Lee Nicholas has been the principal stockholder and has operated World.com Advertising, Inc., since its beginning 10 years ago. The company has prospered. Recently, Nicholas mentioned that he would sell the business for the right price. Assume that you are interested in buying World.com Advertising. You obtain the most recent monthly trial balance, which follows. Revenues and expenses vary little from month to month, and January is a typical month. The trial balance shown is a preliminary or unadjusted trial balance. The controller informs you that the necessary accrual adjustments should include revenues of $3,800 and expenses of $1,100. Also, if you were to buy World.com Advertising, you would hire a manager so you could devote your time to other duties. Assume that this person would require a monthly salary of $5,000.

WORLD.COM ADVERTISING, INC. Trial Balance January 31, 2015 Balance Debit Credit $ 9,700 Account Title Cash Accounts rece

Requirements
1. Assume that 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.
2. Nicholas states the least he will take for the business is an amount equal to the business€™s stockholders€™ equity balance on January 31. Compute this amount.
3. Under these conditions, how much should you offer Nicholas? Give your reason. Decision

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Financial and Managerial Accounting

ISBN: 978-0132497978

3rd Edition

Authors: Horngren, Harrison, Oliver

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