Assignment:
Assume that you recently accepted a position with Five Star National Bank & Trust as an assistant loan officer. As one of your first duties, you have been assigned the responsibility of evaluating a loan request for $300,000 from West Gate Auto Co., a small corporation. In support of the loan application, Joan Whalen, owner and sole stockholder, submitted a "Statement of Accounts" (trial balance) for the first year of operations ended October 31, 2016
West Gate Auto Co.
Statement of Accounts
October 31, 2016
|
Cash
|
5,000
|
--
|
|
Billings Due from Others
|
40,000
|
--
|
|
Supplies (chemicals, etc.)
|
7,500
|
--
|
|
Building
|
222,3000
|
--
|
|
Equipment
|
50,000
|
--
|
|
Amounts Owed to Others
|
--
|
31,000
|
|
Investment in Business
|
--
|
179,000
|
|
Service Revenue
|
--
|
251,000
|
|
Wages Expense
|
75,000
|
--
|
|
Utilities Expense
|
10,000
|
--
|
|
Rent Expense
|
8,000
|
--
|
|
Insurance Expense
|
6,000
|
--
|
|
Other Expenses
|
1,200
|
--
|
|
425,000
|
425,000
|
1. Explain to Joan Whalen why a set of financial statements (income statement, retained earnings statement, and balance sheet) would be useful to you in evaluating the loan request.
2. In discussing the "Statement of Accounts" with Joan Whalen, you discovered that the accounts had not been adjusted at October 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.