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Decision Case Jean Ketchum has been the principal stockholder and has operated Creative Marketing Strategies, Inc., since its inception 12 years ago. The company has
Decision Case Jean Ketchum has been the principal stockholder and has operated Creative Marketing Strategies, Inc., since its inception 12 years ago. The company has been profitable, and recently Jean mentioned that she would sell the business for the right price. Assume that you are interested in purchasing Creative Marketing Strategies. In preparation, you obtain the most recent monthly trial balance, which follows. Revenues and expenses vary little from month to month, and March is a typical month. Upon review, you find that the trial balance does not include monthly revenues of $6,700 and expenses of $1,400. Also, if you were to buy Creative Marketing Strategies, you would hire a manager so you could devote your time to other duties. Assume that this person would require a monthly salary of $4,500. Creative Marketing Strategies, Inc. Trial Balance March 31, 2016 Trial Balance Account Debit Credit Cash 10,500 Accounts receivable 11,440 Prepaid expenses 1,500 Building Accumulated depreciation 285,660 77,500 Accounts payable 11,400 Salary payable Unearned service revenue 64,900 75,000 Common stock 80,500 Retained earnings 9,800 Dividends 15,100 Service revenue 4,400 Salary expense Rent expense 1,100 Utilities expense Depreciation expense Supplies expense 324,400 324,400 Total Requirements: R1. 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. R2. Jean states that the least she will take for the business is an amount equal to the business's stockholders' equity balance on March 31. Compute this amount. R3. Under these conditions, how much should you offer Jean? Give your reason
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