Mary Ann has always loved to cook and is interested in starting a catering business. Being aware of the failure rate of new businesses, she is considering buying an existing catering business that is up for sale. The current owners claim that the business is highly profitable, but Mary Ann has her doubts. She wonders why the owners would be so interested in selling the business if it is such a money maker. Furthermore, the price that they are asking seems high to Mary Ann. Without any formal training in accounting, Mary Ann asks a friend, Rolanda, for advice.
1. Rolanda suggests that Mary Ann may benefit from the services of a noncertified public accountant. Describe two (2) types of services that could be provided.
2. The auditor's report has come back and Mary Ann is reviewing the financial statements. The current balance sheet shows that the business has more liabilities than assets. Why would this explain the need to sell the business? Provide two (2) supporting facts.
3. Rolanda suggests that, even with the negative owners' equity, this business might still be worth buying. Describe one (1) other indicator within the auditor's report that they should consider for this decision.