Your client has been given an opportunity to purchase a privately-held company that’s been in business for 14 years. Your client has access to capital and/or bank loans to make the purchase. Negotiations have not begun. Your client has worked as the CFO in the same industry as this company for the last 5 years. She is interested in this company because she likes what they do, feels their products are competitive (there are hundreds of competitors as it is a fragmented market) and has determined that there is room to grow the company and establish a larger market share. You also have the following information (actual financial statements are not provided for this question): * Comparative Balance Sheets (Assets, Liabilities, Stockholders Equity) for the most recent 3 years * Comparative Income Statements for the most recent 3 years * Comparative Statements of Cash Flows for the most recent 3 years. * All of the financial statements have been audited but you don’t have access to the Notes to the Financial Statements. From reviewing Summary Financial Information you know that the company had a large loss 7 years ago but was reasonably profitable prior to the year of the loss and in all the years since the loss. The 2 current owners are in their 70’s, have no heirs and would like to sell the business and retire. QUESTION: As you review the financial statements, what would you want to know and why to help you determine if making this purchase makes financial sense for your client and that it has the potential to be a good investment? “Why” is an important component of your question as it explains the importance or the financial significance of your question. For example, WHAT YOU'D LIKE TO KNOW: Have these been the same 2 owners for all 14 years or has there been a changes in ownership? WHY: Other owners my have owned the company during the loss year. This might explain the operating results in the year of the loss, in the last 3 years, etc. (Do not use this exact line of inquiry in your answer). This is your preliminary look at the financial statements and you haven’t yet had an opportunity to speak with the owners or anyone else to ask any questions. Your focus should primarily be from an accounting point of view. Incorporate what you have learned in Accounting 301B as well as your general understanding of accounting. Your questions should be divided into sections: one section for each financial statement, e.g., 1. Balance Sheet Section, 2. Income Statement Section 3. Statement of Cash Flows Section. You might also want to include another section: 4. QUESTIONS FOR THE OWNERS," for the questions you might ask the owners when you meet with them in two weeks. Feel free to add additional sections if you like. You are not required to ask questions in every section but these suggested sections are certainly relevant to your analysis. You may write as little or as much as you want. Your questions should include both general questions and specific questions applicable to the financial statements. Your questions do not have to be in any particular order but questions in each section should be pertinent to that specific section. Also, make your own assumptions about what you might be seeing on the financial statements that would trigger such a question. There's no need to explain your assumptions as they should be obvious from the question you are asking. Be as creative as you like. Again, you need to determine what is significant or important in the financial statement data in order to help your client make a good decision. You will earn points for those questions that are most relevant to helping your client make this purchase. Questions like the following are not relevant so please refrain from asking these types of questions: Why are you selling the business? What will you do when you retire? What do you like about this business? What do you find negative about the business? You are asking questions that will give you pertinent accounting information only.