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19-09-2018

Product Code:- Accounts-PH47

 

Prepare a Valuation Report on the Branson Trucking Company. The facts and financial information are found on pages 17-42 through 17 -45 of  Forensic

and Investigative Accounting, 8th Edition

D. Larry Crumbley, Lester E. Heitger, C. Stevenson Smith

 

Business valuation. The Branson Trucking Company was started by three brothers in Columbus, Ohio in 1987. In 1992, Dave James came into the company primarily for marketing and growth purposes. Soon Dave showed that he was effective at increasing business and making deals that caused the company to grow significantly. Within 10 years, Branson trucking was one of the major regional carriers in the central Midwest.

Over the years, the Branson brothers gave stock options to Dave James to keep him happy with the firm and to reflect his contributions to the firm's growth and general success. Dave exercised these options over time, and by 2005, the three Branson brothers and Dave James each owned 25 percent of the stock of the Branson Trucking Company.

By the late-2000s, two of the Branson brothers wanted to bring their children and spouses into the trucking company. The role that these family members would play in the business created significant discussions and some strife. Dave James in particular was opposed to bringing in additional family members. Dave threatened to leave the company, and some of the Bransons thought this was a good idea. After several months of negotiations, it was agreed that Dave James would receive one year's severance pay, and the three Branson brothers would buy his stock in the company at its fair value. At the end of 2017, Dave James resigned from the trucking company.

Branson Trucking Company is a closely held company that does not trade in any market. The only stock sales have been directly from the company to the original holders of the stock. Below are income statements and retained earnings statements for the Branson Trucking Company for the years 2013-2017. The Branson Trucking Company financial statements are prepared by the Black & Blue CPA Group directly from Branson's accounting data. This accounting firm also prepares all of the Branson Trucking Company's tax returns. The financial statements are prepared directly from Branson Trucking's accounting data and are not audited by any accounting firm.

Dave James received severance pay of $150,000. He is currently employed in a similar marketing position with another company earning $175,000 a year. During the 2013-2017 time period, the average price earnings ratio for similar trucking firms that were traded in open markets were 8, 12, 15, 11, and 14, respectively, for the five-year period. After Dave James left the company, Branson Trucking's net income for the years 2018 and 2019 was $650,000 and $890,000, respectively. Below is an appraisal report of the Branson Trucking Company's assets as of December 31, 2017. At that time the firm's total liabilities were $5,100,000.

Required: You are hired as a forensic accounting expert to prepare a business valuation. More specifically, you are to determine the fair value of Dave James's 25 percent ownership interest in the Branson Trucking Company at the time of his departure. Prepare the valuation report using the assumption of either (a) or (b) below:

[Note: Ask your instructor which assumption you are to use; do not use both (a) and (b). Ideally, one-half of the class should use assumption (a) and the other should use assumption (b), and then compare the valuations.]

  1. Assume you have been hired by Dave James to prepare the valuation report.
  2. Assume you have been hired by the three Branson brothers to prepare the valuation report.

Additional requirements: Explain the reasoning for applying any premiums or discounts you use in the valuation, and why you used a specific percentage amount. Also, explain why you did not use certain premiums or discounts that other business valuators might use. Discuss limitations, if any, in your report about your valuation of this business.

Appraiser Report:

Dan Willens, Appraiser

4610 E. Washington Street

Columbus, Ohio 43218

At your request, I have appraised the assets of the Branson Trucking Company as of December 31, 2017. In arriving at my valuations of these assets, I used industry trade data, accepted valuation methods, and other sources of information, as I deemed appropriate under the circumstances. Below is a summary of the results:

Branson Trucking Company
Fair Market Value of Assets
December 31, 2017

Current Assets:

   

   Cash & Cash Equivalents

$324,000

 

   Accounts Receivable (net)

230,000

 

   Inventory, Parts, and Supplies

365,000

 

   Prepaid Expenses

141,000

$1,060,000

Fixed assets:

   

   Land

750,000

 

   Buildings & Fixtures

2,920,000

 

   Rolling Stock

4,730,000

8,400,000

Long-Term Investments:

   

   Bonds of other firms

340,000

 

   Common Stock of other firms

700,000

1,040,000

     

Total Asset Value

 

$10,500,000

UNAUDITED STATEMENTS

Sales

$17,281,000

 

   Less Sales Allowances

562,000

 

   Net Sales

 

$16,719,000

   Cost of Sales

 

12,617,000

   Gross Profit

 

4,102,000

Operating Expenses

 

4,886,000

   Operating Income (Loss)

 

(784,000)

   Other Income:

   

   Gain (Loss) on Sale of Assets

 

588,000

Income (Loss) Before Taxes

 

(196,000)

   Income Taxes

 

0

   Net Income (Loss)

 

$(196,000)

Branson Trucking Company
Income Statement
For the Year Ended December 31, 2013

Branson Trucking Company
Statement of Retained Earnings
For the Year Ended December 31, 2013

Beginning Retained Earnings

$1,456,000

Net Income for the year

   (196,000)

Retained Earnings

$1,260,000

UNAUDITED

Branson Trucking Company
Income Statement
For the Year Ended December 31, 2014

Sales

$20,321,000

 

Less Sales Allowances

   768,000

 

Net Sales

 

$19,553,000

Cost of Sales

 

   12,977,000

Gross Profit

 

6,576,000

Operating Expenses

 

     6,894,000

Operating Income (Loss)

 

(318,000)

Other Income:

   

Gain (Loss) on Sale of Assets

 

       671,000

Income (Loss) Before Taxes

 

353,000

Income Taxes

 

         15,000

Net Income (Loss)

 

$338,000

Branson Trucking Company
Statement of Retained Earnings
For the Year Ended December 31, 2014

Retained Earnings

$1,260,000

Net Income

   338,000

 

1,598,000

Less Dividends

   120,000

Retained Earnings

$1,478,000

UNAUDITED

Branson Trucking Company
Income Statement
For the Year Ended December 31, 2015

Sales

$22,149,000

 

Less Sales Allowances

   883,000

 

Net Sales

 

$21,266,000

Cost of Sales

 

   14,122,000

Gross Profit

 

7,144,000

Operating Expense

 

     6,452,000

Operating Income (Loss)

 

692,000

Other Income:

   

Gain (Loss) on Sale of Assets*

 

         254,000

Income (Loss) Before Taxes

 

946,000

Income Taxes

 

         286,000

Net Income (Loss)

 

       $660,000

* Switched from ACR (tax) depreciation to straight-line depreciation.

Branson Trucking Company
Statement of Retained Earnings
For the Year Ended December 31, 2015

Retained Earnings

$1,478,000

Net Income

     660,000

 

2,138,000

Less Dividends

     400,000

Retained Earnings

$1,738,000

UNAUDITED

Branson Trucking Company
Income Statement
For the Year Ended December 31, 2016

Sales

$29,258,000

 

Less Sales Allowances

   1,186,000

 

Net Sales

 

$28,072,000

Cost of Sales

 

   20,346,000

Gross Profit

 

7,726,000

Operating Expenses

 

     6,488,000

Operating Income (Loss)

 

1,238,000

Other Income:

   

Gain (Loss) on Sale of Assets

 

        254,000

Income (Loss) Before Taxes

 

1,492,000

Income Taxes

 

       665,000

Net Income (Loss)

 

     $827,000

Branson Trucking Company
Statement of Retained Earnings
For the Year Ended December 31, 2016

Retained Earnings

$1,738,000

Net Income

     827,000

 

2,565,000

Less Dividends

     500,000

Retained Earnings

$2,065,000

UNAUDITED

Sales

$34,610,000

 

Less Sales Allowances

   2,407,000

 

Net Sales

 

$32,203,000

Cost of Sales

 

   21,677,000

Gross Profit

 

10,526,000

Operating Expenses

 

     8,738,000

Operating Income (Loss)

 

1,788,000

Other Income:

   

Gain (Loss) on Sale of Assets

 

        344,000

Income (Loss) Before Taxes

 

2,132,000

Income Taxes

 

        960,000

Net Income (Loss)

 

   $1,172,000

Branson Trucking Company
Income Statement
For the Year Ended December 31, 2017

Branson Trucking Company
Statement of Retained Earnings
For the Year Ended December 31, 2017

 

 

Retained Earnings

$2,065,000

Net Income

  1,172,000

 

3,237000

Less Dividends

     800,000

Retained Earnings

$2,437,000

 

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Business Valuation Report The Branson Trucking Company As on 31st December, 2017

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