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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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BuyFindarrow_forward

Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Financial statements

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 proprietorship. In support of the loan application, Joan Whalen, owner, submitted a “Statement of Accounts” (trial balance) for the first year of operations ended October 31, 2016.

Chapter 4, Problem 4.3CP, Financial statements Assume that you recently accepted a position with Five Star National Bank

1. Explain to Joan Whalen 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 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.

3. Assuming that an accurate set of financial statements will be submitted by Joan Whalen in a few days, what other considerations or information would you require before making a decision on the loan request?

(1)

To determine

Financial statement

A financial statement is the complete record of financial transactions that take place in a company at a particular point of time. It provides important financial information like assets, liabilities, revenues and expenses of the company to its internal and external users. It helps them to know the exact financial position of the company. There are four basic financial statements; they are:

  • Balance Sheet
  • Income statement
  • Statement of owners’ equity
  • Statement of cash flows

To Explain: Person J why a set of financial statement would be useful in evaluating the loan request.

Explanation

The reason is that the set of financial statements provides useful information concerning the economic condition of a company. For an example,

  • Balance sheet: This is a financial statement that reports a company’s resources (assets) and claims of creditors (liabilities) and stockholders (stockholders’ equity) over those resources, on a specific date. The resources of the company are assets which include money contributed by stockholders and creditors.
  • Income statement: The financial statement which reports revenues and expenses from business operat...

(2)

To determine

To Discuss: About the statement of accounts with Person J, explaining that the accounts had not been adjusted at October 31.

(3)

To determine

The consideration or information that required before making a decision on the loan request.

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