After reviewing the balance sheet and the further information I was able to gather, I have come to a conclusion of what the purchase prices of Snow Mountain and Ski Town are, $357 920 and $373 173.32, respectively. Through adding the owner’s equity and goodwill for each company I was able to arrive at this amounts. I have further broken down the process I went through to make both ski merchandising company fairly comparable. Additionally, I have attached the balance sheets for Snow Mountain and Ski Town, hopefully all this information is helpful when deciding which company to buy.
When having accounts receivable accounts, it is essential to make an uncollectible accounts expense in order to estimate the amount of money you will probably not be receiving. This account is key when completing financial statements because it avoids the profit and owner’s equity being overstated and the expenses understated, leading to a misrepresentation of the “actual” position the company is at and the net realizable value of the …show more content…
Firstly, to find the value if both companies inventory was based on the average cost method, I subtracted the required $14 000 from $151 400 which calculated to the total being, $137 400. However, since Ski Town had already recorded their inventory using this method, the value stayed at $143 700. Moving forward, to know the inventory amounts using FIFO I kept the sum for Snow Mountain the same which was $137 400 since their business already used this method. Ski Town was different however since I needed to increase the original total from $143 700 by $10 000 to $157 700. When reading the amounts of inventory from both processes, it is clear to see how average cost method is better as it results in a less cost of inventory.
When having accounts receivable accounts, it is essential to make an uncollectible accounts expense in order to estimate the amount of money you will probably not be receiving. This account is key when completing financial statements because it avoids the profit and owner’s equity being overstated and the expenses understated, leading to a misrepresentation of the “actual” position the company is at and the net realizable value of the …show more content…
Firstly, to find the value if both companies inventory was based on the average cost method, I subtracted the required $14 000 from $151 400 which calculated to the total being, $137 400. However, since Ski Town had already recorded their inventory using this method, the value stayed at $143 700. Moving forward, to know the inventory amounts using FIFO I kept the sum for Snow Mountain the same which was $137 400 since their business already used this method. Ski Town was different however since I needed to increase the original total from $143 700 by $10 000 to $157 700. When reading the amounts of inventory from both processes, it is clear to see how average cost method is better as it results in a less cost of inventory.