Financial Accounting
Financial Accounting
5th Edition
ISBN: 9781618531650
Author: Thomas Dyckman
Publisher: Cambridge Business Publishers
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Chapter 3, Problem 56CP

a.

To determine

Compute the portion of the company that has been financed by debt versus equity.

b.

To determine

Identify whether the firm is in violation of its agreement.

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Long-Term Financing Agreement. You have been engaged to audit the financial statements of Broadwall Corporation for the year ended December 31, 2017. During the year, Broadwall obtained a long-term loan from a local bank pursuant to a financing agreement, which provided the following:1. The loan is to be secured by the company’s inventory and accounts receivable.2. The company is to maintain a debt:equity ratio not to exceed 2:1.3. The company is not to pay dividends without permission from the bank.4. Monthly installment payments are to commence July 1, 2017. In addition, during the year, the company also borrowed, on a short-term basis, substantial amounts just prior to the year-end from the president of the company. Required:a. For the purposes of your audit of the Broadwall Corporation’s financial statements, what procedures should you employ in examining the described loans? Do not discuss internal control.b. What are the financial statement disclosures that you should expect to…
Aggressive Corporation approaches Matt Taylor, a loan officer for Oklahoma State Bank, seeking toincrease the company's borrowings with the bank from $100,000 to $150,000. Matt has an uneasyfeeling as he examines the loan application from Aggressive Corporation, which just completed itsfirst year of operations. The application included the following financial statements The income statement submitted with the application shows a net income of $30,000 in the first yearof operations. Referring to the balance sheet, this net income represents a more-than-acceptable15% rate of return on assets of $200,000.Matt's concern stems from his recollection that the $100,000 note payable reported on the balancesheet is a three-year loan from his bank, approved earlier this year. He recalls another promising newcompany that, just recently, defaulted on its loan due to its inability to generate sufficient cash flowsto meet its loan obligations.Seeing Matt's hesitation, Larry Bling, the CEO of…
Assume that on December 1, 2010, your company borrowed $14,000 a portion of which is to be repaid each year on november 30. Specifically your company will make the following principal payments: 2011. $2,000; 2012, $3,000; 2013, $4,000; and 2014, $5,000. Show how this loan will be reported in the December 31, 2011 and 2010 balance sheets, assuming that principal payments will be made when required.
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