On 3 January 20X4, Drew Kent agreed to buy the Sharp Repair and Services from Nadine Joyner. They agreed that the purchase price would be five times the 20X3 net income of the business. To determine the price, Nadine prepared the following condensed income statement for 20X3.

Nadine said to Drew, 'Based on this net income, the purchase price of the business should be \(\$ 180000(\$ 36000 \times 5)\). Of course, you may look at whatever accounting records you would like.' Drew examined the accounting records and found them to be correct, except for several balance sheet accounts. These accounts and their 31 December 20X3 balances are as follows: two asset accounts - Prepaid Rent, \(\$ 10800\); and Equipment, \(\$ 14400\); and one liability account - Unearned Repair Service Revenues, \(\$ 0\).
Drew gathered the following business information related to these accounts. The business was started on 2 January 20X0. At that time, the business rented space in a building for its operations and purchased \(\$ 19200\) of equipment. At that time, the equipment had an estimated life of eight years, after which it would be worthless. On 1 July 20X3 the business paid one year of rent in advance at \(\$ 900\) per month. On 1 September 20X3 customers paid \(\$ 1800\) in advance for cleaning services to be performed by the business for the next 12 months. Drew asks for your help. He says, 'I don't know how these items affect net income, if at all. I want to pay a fair price for the business'.
Required:
a Discuss how the 20X3 net income of the Sharp Repair and Services was affected, if at all, by each of the items.
b Prepare a corrected condensed 20X3 income statement.
c Calculate a fair purchase price for the business.

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Revenues Expenses Net income $ 144 000 (108 000) $36 000