This question is to be an email from a client (Mock Email) What I need is a prepared response as if I were the CPA/Accountant answering the question.
Hi Accountant,
Could you share your professional advice on a potential business proposition? Here are the details:
My sister started a website called Mouse Savers. She has always loved Mickey Mouse and anything Walt Disney. Her website offers a social integration service, connecting Disney vendors and Disney consumers. I was shocked when my sister collected over $1,000,000 in sales revenue during her first year of business.Her website’s popularity has grown consistently. After seeing the exponential growth in the first five years, I believe this website has even more potential. I asked my sister if she would sell her website business to me (so she can spend more time with my nieces & nephews). My sister’s lawyer contacted me yesterday, and stated a purchase price of $4,500,000. I do not know how this figure was computed. Why is the purchase price different than the balance sheet’s net assets?
TheMouseSavers 12/31/2014 balance sheet includes: accounts receivable $2,330,000, note payable $500,000, discount on note payable $100,000. The corresponding fair values are: accounts receivable $2,330,000, note payable $490,000, discount on note payable $100,000.
If I agreed to the purchase, and assumed ownership on 12/31/2014, what journal entry would my sister record at 12/31/2014? Please explain why each account is being debited and/or credited. What journal entry would I record at 12/31/2014? Please explain why each account is being debited and/or credited. (Type your formatted journal entries in an excel file & attach your excel file to your response email.)
I do remember a little bit from my accounting classes. I know my journal entries need an equal amount of debits and credits to balance. I can see that I need to record a debit to balance my journal. Is my missing debit an asset or an expense? If I’m recording an asset on my balance sheet, how much depreciation expense should I record in 2015?
My sister’s accountants asked me if I needed assistance with the subsequent accounting procedures. Which subsequent accounting procedures are they referring to? Why are subsequent accounting procedures required for some business acquisitions?
Lastly, do you think I should buy my sister’s business? Why or why not? Please specify the pros & cons to justify the reasoning behind your professional recommendation.
Please reply (in a one page email) before Tuesday, November 3rd @ 8:00am.
Thanks,
Your Client
