Financial statements
Response to the following problem:
Assume that you recently accepted a position with Frontier National Bank as an assistant loan officer. As one of your first duties, you have been assigned the responsibility of evaluating a loan request for $150,000 a small proprietorship. In support of the loan application, Tess Ramey, owner, submitted a "Statement of Accounts" (trial balance) for the first year of operations ended July 31, 2012.
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Cash
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5,000
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Billings Due from Others
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40,000
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|
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Supplies (chemicals, etc.)
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7,500
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Building
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122,300
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|
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Equipment
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25,000
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|
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Amounts Owed to Others
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11,000
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Investment in Business
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|
74,000
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Service Revenue
|
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215,000
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Wages Expense
|
75,000
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|
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Utilities Expense
|
10,000
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|
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Rent Expense
|
8,000
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|
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Insurance Expense
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6,000
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|
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Other Expenses
|
1,200
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|
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300,000
|
300,000
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1. Explain to Tess Ramey why a set of financial statements (income statement, statement of owner's equity, and balance sheet) would be useful to you in evaluating the loan request.
2. In discussing the "Statement of Accounts" with Tess Ramey, you discovered that the accounts had not been adjusted at July 31. Analyze the "Statement of Accounts" and indicate possible adjusting entries that might be necessary before an accurate set of financial statements could be prepared.
3. Assuming that an accurate set of financial statements will be submitted by Tess Ramey in a few days, what other considerations or information would you require before making a decision on the loan request?