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# O’Henry’s Data Services Balance Sheet, Case Study Example

Pages: 1

Words: 217

Case Study

When doing O’Henry’s Data Services balance sheet adjustment, the following entries are made:

 Debit Credit Accounts receivable 2,100 Service revenue 2,100 Accounts payable 2,750 Other expenses 2,750

After making adjustment entries, net income of O’Henry’s Data Services can be calculated:

NI = Service revenue – Salary expense – Utilities expense – Other expenses = (\$14,300 + \$2,100) – \$3,400 – \$900 – \$2,750 = \$9,350

Net income for the buyer is smaller than Net income of the owner by the salary of the manager:

NIb = \$9,350 – \$3,000 = \$6,350 – this is the net income, buyer will receive per month.

The highest price of a business for the buyer equals 20 monthly net incomes, so it equals:

BP = \$6,350 × 20 = \$127,000

The least price for the business for O’Henry equals ending capital of O’Henry’s Data Services:

EC = Beginning capital + Net income – Withdrawals = \$137,400 + \$9,350 – \$2,000 = \$144,750

Under this condition the price offered to O’Henry will be between \$127,000 and \$144,750. If there are other alternatives to get invested \$127,000 back in 20 months, the price will equal \$127,000. If there are no investment options, which can give an ability to get invested \$144,750 back in 20 months, the offer price would be \$144,750.

References

Horngren, C. T., Sundem, G. L., Elliott J. A. (1993). Introduction to financial accounting. Prentice Hall.

Eisen, P. J. (2007). Accounting. Barron’s Educational Series.

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